10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended MARCH 31, 2013

Commission File No. 000-13580

SUFFOLK BANCORP

(Exact Name of Registrant as Specified in Its Charter)

NEW YORK	11-2708279
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

4 WEST SECOND STREET, RIVERHEAD, NEW YORK 11901

(Address of Principal Executive Offices) (Zip Code)

(631) 208-2400

(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 x    No o

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 x    No o

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

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o	Smaller reporting company o

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

Yes o    No x

As of April 25, 2013, there were 11,566,347 shares of registrant’s Common Stock outstanding.

SUFFOLK BANCORP

Form 10-Q

For the Quarterly Period Ended March 31, 2013

Table of Contents

		Page
	PART I
Item 1.	Financial Statements
	Condensed Consolidated Statements of Condition (Unaudited) as of March 31, 2013 and December 31, 2012	2
	Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2013 and 2012	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the Three Months Ended March 31, 2013 and 2012	4
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, 2013 and 2012	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2013 and 2012	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	39
	PART II
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	40
Item 6.	Exhibits	40
	Signatures	41

1

PART I

ITEM 1. – FINANCIAL STATEMENTS

SUFFOLK BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)

March 31, 2013 and December 31, 2012

(dollars in thousands except per share data)

	March 31, 2013			December 31, 2012
ASSETS
Cash and cash equivalents
Cash and non-interest bearing deposits due from banks	$	35,292		$	80,436
Interest bearing deposits due from banks		267,237			304,220
Federal funds sold		1,150			1,150
Total cash and cash equivalents		303,679			385,806
Federal Reserve Bank,  Federal Home Loan Bank and other stock		3,043			3,043
Investment securities:
Available for sale, at fair value		413,277			402,353
Held to maturity (fair value of $8,662 and $8,861, respectively)		7,871			8,035
Total investment securities		421,148			410,388
Loans		824,399			780,780
Allowance for loan losses		17,834			17,781
Net loans		806,565			762,999
Loans held-for-sale		2,494			907
Premises and equipment, net		27,299			27,656
Deferred taxes		11,656			11,385
Income tax receivable		5,349			5,406
Other real estate owned ("OREO")		372			1,572
Accrued interest and loan fees receivable		5,746			4,883
Goodwill and other intangibles		2,853			2,670
Other assets		3,722			5,749
TOTAL ASSETS	$	1,593,926		$	1,622,464
LIABILITIES & STOCKHOLDERS' EQUITY
Demand deposits	$	557,712		$	615,120
Saving, N.O.W. & money market deposits		596,230			572,263
Time certificates of $100,000 or more		173,918			165,731
Other time deposits		75,898			78,000
Total deposits		1,403,758			1,431,114
Unfunded pension liability		7,765			7,781
Capital leases		4,675			4,688
Accrued interest payable		235			237
Other liabilities		11,937			14,659
TOTAL LIABILITIES		1,428,370			1,458,479
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock (par value $2.50; 15,000,000 shares authorized;13,732,085 shares issued; 11,566,347 shares outstanding at March 31, 2013 and December 31, 2012)		34,330			34,330
Surplus		42,710			42,628
Retained earnings		92,264			89,555
Treasury stock at par (2,165,738 shares at March 31, 2013 and December 31, 2012)		(5,414	)		(5,414	)
Accumulated other comprehensive income net of tax		1,666			2,886
TOTAL STOCKHOLDERS' EQUITY		165,556			163,985
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY	$	1,593,926		$	1,622,464

See accompanying notes to unaudited condensed consolidated financial statements.

2

SUFFOLK BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

For the Three Months Ended March 31, 2013 and 2012

(dollars in thousands except per share data)

	Three Months Ended
	March 31,
	2013		2012
INTEREST INCOME
Loans and Loan Fees	$	11,082	$	12,394
U.S. Government Agency Obligations		333		-
Obligations of States & Political Subdivisions		1,500		1,526
Collateralized Mortgage Obligations		835		1,194
Mortgage-Backed Securities		365		7
Corporate Bonds		117		-
Federal Funds Sold & Interest Bearing Deposits Due from Banks		173		77
Dividends		39		46
Total Interest Income		14,444		15,244
INTEREST EXPENSE
Saving, N.O.W. & Money Market Deposits		286		317
Time Certificates of $100,000 or More		300		439
Other Time Deposits		182		280
Total Interest Expense		768		1,036
Net Interest Income		13,676		14,208
Provision for Loan Losses		-		-
Net Interest Income After Provision for Loan Losses		13,676		14,208
NON-INTEREST INCOME
Service Charges on Deposit Accounts		924		950
Other Service Charges, Commissions & Fees		710		750
Fiduciary Fees		273		201
Net Gain on Sale of Securities Available for Sale		359		-
Net Gain on Sale of Portfolio Loans		442		-
Net Gain on Sale of Mortgage Loans Originated for Sale		526		197
Other Operating Income		83		157
Total Non-Interest Income		3,317		2,255
OPERATING EXPENSES
Employee Compensation and Benefits		8,582		8,584
Occupancy Expense		1,544		1,454
Equipment Expense		572		512
Consulting and Professional Services		570		897
FDIC Assessments		517		70
Data Processing		467		369
Accounting and Audit Fees		21		584
Other Operating Expense		1,528		2,135
Total Operating Expenses		13,801		14,605
Income Before Income Tax Expense		3,192		1,858
Income Tax Expense		483		690
NET INCOME	$	2,709	$	1,168
EARNINGS PER COMMON SHARE - BASIC	$	0.23	$	0.12
EARNINGS PER COMMON SHARE - DILUTED	$	0.23	$	0.12
WEIGHTED AVERAGE NUMBER OF COMMON SHARES - BASIC		11,566,347		9,726,814
WEIGHTED AVERAGE NUMBER OF COMMON SHARES - DILUTED		11,566,347		9,726,814

See accompanying notes to unaudited condensed consolidated financial statements.

3

SUFFOLK BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

For the Three Months Ended March 31, 2013 and 2012

(dollars in thousands)

	Three Months Ended
	March 31,
	2013			2012
Net Income	$	2,709		$	1,168
Other Comprehensive Loss, Net of Taxes and Reclassification Adjustments:
Decrease in Unrealized Gain on Securities Available for Sale Arising During the Period		(1,220	)		(1,573	)
Pension and Post-Retirement Plan Benefit Obligation		-			(255	)
Total Other Comprehensive Loss, Net of Taxes		(1,220	)		(1,828	)
Total Comprehensive Income (Loss)	$	1,489		$	(660	)

See accompanying notes to unaudited condensed consolidated financial statements.

SUFFOLK BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)

For the Three Months Ended March 31, 2013 and 2012

(in thousands except for share data)

	Three Months Ended
	March 31,
	2013			2012
Common Stock
Balance, January 1	$	34,330		$	34,330
Ending Balance		34,330			34,330
Surplus
Balance, January 1		42,628			24,010
Stock-based compensation		82			27
Ending Balance		42,710			24,037
Retained Earnings
Balance, January 1		89,555			91,303
Net income		2,709			1,168
Ending Balance		92,264			92,471
Treasury Stock
Balance, January 1		(5,414	)		(10,013	)
Ending Balance		(5,414	)		(10,013	)
Accumulated Other Comprehensive Income (Loss), Net of Tax
Balance, January 1		2,886			(3,070	)
Other comprehensive loss		(1,220	)		(1,828	)
Ending Balance		1,666			(4,898	)
Total Stockholders' Equity	$	165,556		$	135,927

See accompanying notes to unaudited condensed consolidated financial statements.

4

SUFFOLK BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the Three Months Ended March 31, 2013 and 2012

(in thousands)

	Three Months Ended
	March 31,
	2013			2012
NET INCOME	$	2,709		$	1,168
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation and Amortization		684			648
Stock-Based Compensation		82			27
Net Amortization of Premiums		317			504
Originations of Mortgage Loans for Sale		(20,461	)		(8,195	)
Proceeds from Sale of Mortgage Loans Originated for Sale		23,073			8,392
Gain on Sale of Mortgage Loans Originated for Sale		(526	)		(197	)
Gain on Sale of Portfolio Loans		(442	)		-
(Increase) Decrease in Other Intangibles		(183	)		23
Deferred Tax Expense (Benefit)		425			(11	)
Decrease in Income Tax Receivable		57			700
(Increase) Decrease in Accrued Interest and Loan Fees Receivable		(863	)		752
Decrease in Other Assets		2,028			206
Adjustment to Unfunded Pension Liability		(16	)		791
Decrease in Accrued Interest Payable		(2	)		-
Decrease in Other Liabilities		(2,722	)		(1,373	)
Gain on Sale of Securities Available for Sale - Net		(359	)		-
Net Cash Provided by Operating Activities		3,801			3,435
CASH FLOWS FROM INVESTING ACTIVITIES
Principal Payments on Investment Securities		19,831			8,100
Proceeds from Sale of Investment Securities - Available for Sale		10,475			-
Maturities of Investment Securities - Available for Sale		6,025			30,406
Purchases of Investment Securities - Available for Sale		(49,129	)		(30,000	)
Maturities of Investment Securities - Held to Maturity		163			143
Purchases of Investment Securities -  Held to Maturity		-			(25	)
Proceeds from Sale of Portfolio Loans		1,349			-
Loan (Originations) Repayments - Net		(48,146	)		29,968
Proceeds from Sale of OREO		1,200			-
Purchases of Premises and Equipment - Net		(327	)		(518	)
Net Cash (Used in) Provided by Investing Activities		(58,559	)		38,074
CASH FLOWS FROM FINANCING ACTIVITIES
Net Decrease in Deposit Accounts		(27,356	)		(596	)
Decrease  in Capital Lease Payable		(13	)		(18	)
Net Cash Used in Financing Activities		(27,369	)		(614	)
Net (Decrease) Increase in Cash and  Cash Equivalents		(82,127	)		40,895
Cash and Cash Equivalents Beginning of Period		385,806			172,559
Cash and Cash Equivalents End of Period	$	303,679		$	213,454
Supplemental Disclosure:
Cash Paid During the Period for:
Interest	$	770		$	1,249

See accompanying notes to unaudited condensed consolidated financial statements.

5

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The unaudited interim condensed consolidated financial statements include the accounts of Suffolk Bancorp (the “Company”) and its wholly owned subsidiary, the Suffolk County National Bank of Riverhead and its subsidiaries (the “Bank”). The Bank formed Suffolk Greenway, Inc., a real estate investment trust, and owns 100% of an insurance agency and two corporations used to acquire foreclosed real estate. The insurance agency and the two corporations used to acquire foreclosed real estate are immaterial to the Company’s operations. Suffolk Bancorp and subsidiaries are collectively referred to hereafter as the “Company.” All material intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of the Company’s management, the preceding unaudited interim condensed consolidated financial statements contain all adjustments, consisting of normal accruals, necessary for a fair presentation of its condensed consolidated statements of condition as of March 31, 2013 and December 31, 2012, its condensed consolidated statements of operations for the three months ended March 31, 2013 and 2012, its condensed consolidated statements of comprehensive income (loss) for the three months ended March 31, 2013 and 2012, its condensed consolidated statements of stockholders’ equity for the three months ended March 31, 2013 and 2012 and its condensed consolidated statements of cash flows for the three months ended March 31, 2013 and 2012. The preceding unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X, as well as in accordance with predominant practices within the banking industry. They do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results of operations to be expected for the remainder of the year. For further information, please refer to the audited consolidated financial statements and footnotes thereto included in the Company’s 2012 Annual Report on Form 10-K.

Loans and Loan Interest Income Recognition - Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned discounts, deferred loan fees and costs.  Unearned discounts on installment loans are credited to income using methods that result in a level yield. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income over the respective term of the loan without anticipating prepayments.

Interest income is accrued on the unpaid loan principal balance.  Recognition of interest income is discontinued when reasonable doubt exists as to whether principal or interest due can be collected. For all classes of loans, loans generally no longer accrue interest when over 90 days past due unless the loan is well-secured and in process of collection. When a loan is placed on non-accrual status, all interest previously accrued, but not collected, is reversed against current-year interest income. Interest received on such loans is applied against principal or interest, according to management’s judgment as to the collectability of the principal, until qualifying for return to accrual status. Loans start accruing interest again when they become current as to principal and interest for at least six months, and when, in the opinion of management, the loans can be collected in full.  For all classes of loans, an impaired loan is defined as a loan for which it is probable that the lender will not collect all amounts due under the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties are considered troubled debt restructurings (“TDRs”) and are classified as impaired. Generally, TDRs are initially classified as non-accrual until sufficient time has passed to assess whether the restructured loan will continue to perform. For impaired, accruing loans, interest income is recognized on an accrual basis with cash offsetting the recorded accruals upon receipt. Interest received on non-accrual, impaired loans is applied against principal or interest according to management’s judgment as to the collectibility of the principal.

Allowance for Loan Losses - The allowance for loan losses is a valuation allowance for probable incurred losses, increased by the provision for loan losses and recoveries, and decreased by loan charge-offs. For all classes of loans, when a loan, in full or in part, is deemed uncollectible, it is charged against the allowance for loan losses. This happens when the loan is past due and the borrower has not shown the ability or intent to make the loan current, or the borrower does not have sufficient assets to pay the debt, or the value of the collateral is less than the balance of the loan and is not considered likely to improve soon. The allowance for loan losses is determined by a continuous analysis of the loan portfolio. Such analysis includes changes in the size and composition of the portfolio, the Company’s own historical loan losses, industry-wide losses, current and anticipated economic trends, and details about individual loans. It also includes estimates of the actual value of collateral, other possible sources of repayment and estimates that are susceptible to significant changes due to changes in appraisal values of collateral, national and regional economic conditions and other relevant factors. All non-accrual loans over $250 thousand in the commercial and industrial, commercial real estate and real estate construction loan classes and all TDRs are evaluated individually for impairment. Management will use judgment to determine if there are other loans outside of these two categories that fit the definition of impaired. All other loans are generally evaluated as homogeneous pools with similar risk characteristics. In assessing the adequacy of the allowance for loan losses, management reviews the loan portfolio by separate classes that have similar risk and collateral characteristics; e.g., commercial and industrial, commercial real estate, real estate construction, residential mortgages (1st and 2nd liens), home equity and consumer loans.

6

The allowance for loan losses consists of specific and general components. The specific component relates to loans that are individually classified as impaired. Specific reserves are established based on an analysis of the most probable sources of repayment and liquidation of collateral. Impaired loans that are collateral dependent are reviewed based on their collateral and the estimated time required to recover the Company’s investment in the loans, as well as the cost of doing so, and the estimate of the recovery. Non-collateral dependent impaired loans are reviewed based on the present value of estimated future cash flows, including balloon payments, if any, using the loan’s effective interest rate. While every non-performing loan is evaluated individually, not every loan requires a specific reserve. Specific reserves fluctuate based on changes in the underlying loans, anticipated sources of repayment, and charge-offs. The general component covers non-impaired loans and is based on historical loss experience for each loan class from a rolling twelve quarter period and modifying those percentages, if necessary, after adjusting for current qualitative and environmental factors that reflect changes in the collectability of the loan class not captured by historical loss data.  These factors augment actual loss experience and help estimate the probability of loss within the loan portfolio based on emerging or inherent risk trends. These qualitative factors are applied as an adjustment to historical loss rates and require judgments that cannot be subjected to exact mathematical calculation. There are no formulas for translating them into a specific basis point adjustment of the Company’s historical loss rate for a pool of loans having similar risk characteristics. These adjustments reflect management’s overall estimate of the extent to which current losses on a pool of loans will differ from historical loss experience. These adjustments are subjective estimates and management reviews them on a quarterly basis. TDRs are also considered impaired with impairment generally measured at the present value of estimated future cash flows using the loan’s effective interest rate at inception or using the fair value of collateral, less estimated costs to sell, if repayment is expected solely from the collateral.

Loans Held-For-Sale – Loans held-for-sale are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Changes in fair value of loans held-for-sale are recognized in earnings.

Dividend Restriction - Banking regulations and the Bank's formal agreement (the “Agreement”) with the Office of the Comptroller of the Currency (“OCC”) require maintaining certain capital levels and impose limitations on dividends paid by the Bank to the Company and by the Company to stockholders. (See also Regulatory Matters footnote contained herein.)

Recent Accounting Guidance - In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-02, Comprehensive Income (Topic 220), “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. This standard is effective prospectively for public entities for annual and interim reporting periods beginning after December 15, 2012. Being disclosure-related only, the Company’s adoption of ASU 2013-02 on January 1, 2013 did not have a material effect on the Company’s results of operations or financial condition.

7

Reclassifications — Certain reclassifications have been made to prior period information in order to conform to the current period’s presentation. Such reclassifications had no impact on the Company’s results of operations or financial condition.

2. ACCUMULATED OTHER COMPREHENSIVE INCOME (“AOCI”)

The changes in the Company’s AOCI by component, net of tax, for the three months ended March 31, 2013 and 2012 follow (in thousands).

	Three Months Ended March 31, 2013									Three Months Ended March 31, 2012
	Unrealized Gains and Losses on Available-for-Sale Securities			Pension and Post- Retirement Plan Items			Total			Unrealized Gains and Losses on Available-for-Sale Securities			Pension and Post- Retirement Plan Items			Total
Beginning balance	$	10,553		$	(7,667	)	$	2,886		$	11,873		$	(14,943	)	$	(3,070	)
Other comprehensive loss before reclassifications		(991	)		-			(991	)		(1,573	)		(255	)		(1,828	)
Amounts reclassified from AOCI		(229	)		-			(229	)		-			-			-
Net current-period other comprehensive loss		(1,220	)		-			(1,220	)		(1.573	)		(255	)		(1,828	)
Ending balance	$	9,333		$	(7,667	)	$	1,666		$	10,300		$	(15,198	)	$	(4,898	)

The table below presents reclassifications out of AOCI for the three months ended March 31, 2013 (in thousands).

Three Months Ended March 31, 2013 Details about AOCI Components	Amount Reclassified from AOCI			Affected Line Item in the Statement Where Net Income is Presented
Unrealized Gains and Losses on Available-for-Sale Securities	$	359		Net Gain on Sale of Securities Available for Sale
		(130	)	Income Tax Expense
Total reclassifications, net of tax	$	229

8

3. INVESTMENT SECURITIES

At the time of purchase of a security, the Company designates the security as either available for sale or held to maturity, depending upon investment objectives, liquidity needs and intent. Securities held to maturity are stated at cost, adjusted for premium amortized or discount accreted, if any. The Company has the positive intent and ability to hold such securities to maturity. Securities available for sale are stated at estimated fair value. Unrealized gains and losses are excluded from income and reported net of tax as accumulated other comprehensive income (loss) as a separate component of stockholders’ equity until realized. Interest earned on securities is included in interest income. Realized gains and losses on the sale of securities are reported in the consolidated statements of operations and determined using the adjusted cost of the specific security sold.

The amortized cost, estimated fair value and gross unrealized gains and losses of the Company’s investment securities available for sale and held to maturity at March 31, 2013 and December 31, 2012 follow (in thousands).

	March 31, 2013									December 31, 2012
			Gross		Gross			Estimated				Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
Available for sale:
U.S. Treasury securities	$	-	$	-	$	-		$	-	$	500	$	-	$	-		$	500
U.S. government agency securities		75,533		59		(204	)		75,388		65,085		70		(77	)		65,078
Obligations of states and political subdivisions		153,701		12,851		-			166,552		155,121		13,314		-			168,435
Collateralized mortgage obligations		64,724		1,449		(69	)		66,104		87,624		2,148		(80	)		89,692
Mortgage-backed securities		86,156		500		(277	)		86,379		61,750		766		(66	)		62,450
Corporate bonds		18,507		362		(15	)		18,854		15,701		497		-			16,198
Total available for sale securities		398,621		15,221		(565	)		413,277		385,781		16,795		(223	)		402,353
Held to maturity:
Obligations of states and political subdivisions		7,871		791		-			8,662		8,035		826		-			8,861
Total investment securities	$	406,492	$	16,012	$	(565	)	$	421,939	$	393,816	$	17,621	$	(223	)	$	411,214

At March 31, 2013 and December 31, 2012, investment securities carried at $278 million and $286 million, respectively, were pledged to secure trust deposits and public funds on deposit.

The amortized cost, contractual maturities and estimated fair value of the Company’s investment securities at March 31, 2013 (in thousands) are presented in the table below. Collateralized mortgage obligations (“CMOs”) and mortgage-backed securities (“MBS”) assume maturity dates pursuant to average lives.

	March 31, 2013
	Amortized		Estimated
	Cost		Fair Value
Securities available for sale:
Due in one year or less	$	42,434	$	43,232
Due from one to five years		116,217		123,531
Due from five to ten years		209,792		216,357
Due after ten years		30,178		30,157
Total securities available for sale		398,621		413,277
Securities held to maturity:
Due in one year or less		1,535		1,545
Due from one to five years		5,938		6,672
Due from five to ten years		398		445
Total securities held to maturity		7,871		8,662
Total investment securities	$	406,492	$	421,939

9

The proceeds from sales of securities available for sale and the associated net realized gains follow (in thousands):

	Three Months Ended
	March 31,
	2013		2012
Proceeds	$	10,475	$	-
Gross realized gains		359		-
Gross realized losses		-		-
Net realized gains	$	359	$	-

The table below indicates the length of time individual securities, both held to maturity and available for sale, have been held in a continuous unrealized loss position at the date indicated (in thousands).

			Less than 12 months				12 months or longer				Total
As of March 31, 2013	Number of		Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
Type of securities	Securities		Fair value		Losses		Fair value		Losses		Fair value		Losses
U.S. government agency securities		8	$	38,820	$	204	$	-	$	-	$	38,820	$	204
Collateralized mortgage obligations		3		10,177		69		-		-		10,177		69
Mortgage-backed securities		9		30,696		277		-		-		30,696		277
Corporate bonds		2		5,520		15		-		-		5,520		15
Total		22	$	85,213	$	565	$	-	$	-	$	85,213	$	565
			Less than 12 months				12 months or longer				Total
As of December 31, 2012	Number of		Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
Type of securities	Securities		Fair value		Losses		Fair value		Losses		Fair value		Losses
U.S. government agency securities		6	$	28,958	$	77	$	-	$	-	$	28,958	$	77
Collateralized mortgage obligations		2		7,878		80		-		-		7,878		80
Mortgage-backed securities		4		14,098		66		-		-		14,098		66
Total		12	$	50,934	$	223	$	-	$	-	$	50,934	$	223

The Company’s management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. All of the Company’s investment securities classified as available-for-sale or held-to-maturity are evaluated for OTTI under ASC 320, “Accounting for Certain Investments in Debt and Equity Securities.” In determining OTTI under ASC 320, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than amortized cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an OTTI decline exists involves a high degree of subjectivity and judgment and is based on information available to management at a point in time. An OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

When an OTTI occurs, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss. If an entity intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the OTTI is recognized in earnings equal to the entire difference between the investment’s amortized cost and its estimated fair value at the balance sheet date. If an entity 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 less any current-period loss, the OTTI is separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total 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 tax benefit. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

Upon review of the considerations mentioned here, no OTTI was deemed to be warranted at March 31, 2013.

10

4. LOANS

At March 31, 2013 and December 31, 2012, net loans disaggregated by class consisted of the following (in thousands):

	March 31,			December 31,
	2013			2012
Commercial and industrial	$	187,775		$	168,709
Commercial real estate		399,270			369,271
Real estate construction		14,075			15,469
Residential mortgages (1st and 2nd liens)		146,967			146,575
Home equity		63,463			66,468
Consumer		12,849			14,288
Gross loans		824,399			780,780
Allowance for loan losses		(17,834	)		(17,781	)
Net loans at end of period	$	806,565		$	762,999

For the three months ended March 31, 2013 and 2012, the activity in the allowance for loan losses disaggregated by class is shown below (in thousands).

	Commercial and industrial			Commercial real estate			Real estate construction			Residential mortgages (1st and 2nd liens)			Home equity			Consumer			Unallocated			Total
Three months ended March 31, 2013
Balance at beginning of period	$	6,181		$	6,149		$	141		$	1,576		$	907		$	189		$	2,638		$	17,781
Charge-offs		(348	)		-			-			-			-			(11	)		-			(359	)
Recoveries		299			72			-			1			1			39			-			412
Provision for loan losses		(787	)		349			704			864			16			28			(1,174	)		-
Balance at end of period	$	5,345		$	6,570		$	845		$	2,441		$	924		$	245		$	1,464		$	17,834
	Commercial and industrial			Commercial real estate			Real estate construction			Residential mortgages (1st and 2nd liens)			Home equity			Consumer			Unallocated			Total
Three months ended March 31, 2012
Balance at beginning of period	$	25,047		$	11,029		$	623		$	2,401		$	512		$	313		$	33		$	39,958
Charge-offs		(337	)		-			-			(395	)		(61	)		(32	)		-			(825	)
Recoveries		855			-			-			1			-			19			-			875
Provision for loan losses		(1,772	)		(2,150	)		(44	)		28			804			54			3,080			-
Balance at end of period	$	23,793		$	8,879		$	579		$	2,035		$	1,255		$	354		$	3,113		$	40,008

The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors.  Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired.

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.  Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered TDRs and classified as impaired. Generally, TDRs are initially classified as non-accrual until sufficient time has passed to assess whether the restructured loan will continue to perform. Generally, the Company returns a TDR to accrual status upon six months of performance under the new terms.

11

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Management has determined that all TDRs and all non-accrual loans are impaired; however, non-accrual loans with an impaired balance of $250 thousand or less will be evaluated under ASC 450 with other groups of smaller or homogeneous loans with similar risk characteristics. Management will use judgment to determine if there are other loans outside of these two categories that fit the definition of impaired. If a loan is impaired, a specific reserve is recorded so that the loan is reported, net, at the present value of estimated future cash flows including balloon payments, if any, using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of homogeneous loans with smaller individual balances, such as consumer and residential real estate loans, are generally evaluated collectively for impairment, and accordingly, are not separately identified for impairment disclosures. TDRs are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a TDR is considered to be “collateral-dependent,” the loan is reported at the fair value of the collateral net of estimated costs to sell.  For TDRs that subsequently default, the Company determines the allowance amount in accordance with its accounting policy for the allowance for loan losses.

The general component of the allowance covers non-impaired loans and is based on historical loss experience, adjusted for qualitative factors.  The historical loss experience is determined by loan class, and is based on the actual loss history experienced by the Company over a rolling twelve quarter period. This actual loss experience is supplemented with other qualitative factors based on the risks present for each loan class.  These qualitative factors include consideration of the following:  levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures and practices; experience, ability, and depth of lending management and other relevant staff; local, regional and national economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The following loan classes have been identified: commercial and industrial, commercial real estate, real estate construction, residential mortgages (1st and 2nd liens), home equity and consumer. For performing loans, an estimate of adequacy is made by applying qualitative factors specific to the portfolio to the period-end balances. Consideration is also given to the type and collateral of the loans with particular attention paid to commercial real estate construction loans, due to the inherent risk of this type of loan. Specific and general reserves are available for any identified loss.

The Company recorded no consolidated provision for loan losses for the three months ended March 31, 2013 and 2012. For the three months ended March 31, 2013, the Company decreased its allowance for loan losses allocated to commercial and industrial (“C&I”) loans by $787 thousand, while increasing its allowance allocation to commercial real estate (“CRE”), real estate construction and residential mortgages (1st and 2nd liens) by $349 thousand, $704 thousand and $864 thousand, respectively.

The decrease in the allowance for loan losses allocated to C&I loans during the first quarter of 2013 reflected a 0.94% reduction in the ASC 450-20 historical loss factors rate on unimpaired pass rated C&I loans. Partially offsetting the loss factors rate reduction was a $20 million increase in the balance of unimpaired pass rated C&I loans during the first quarter of 2013, coupled with an increase of $97 thousand in specific reserves for C&I loans as computed under ASC 310-10 at March 31, 2013 as compared to December 31, 2012.

The increase in the allowance for loan losses allocated to CRE loans was primarily due to a $39 million increase in the balance of unimpaired pass rated CRE loans, mainly due to growth in multi-family lending, versus December 31, 2012. The increases to the allowance allocated to real estate construction and residential mortgages was largely due to increases in the ASC 450-20 historical loss factors for such loans of 5.68% and 0.56%, respectively, when compared to December 31, 2012.

The changes in the ASC 450-20 loss factors rates were primarily due to an expansion of the look back period used in calculating historical losses to a rolling twelve quarter period (from an eight quarter period) for each loan segment. This change results from the Company’s effort to improve the granularity of its individual loan segment charge-off history effective with the March 31, 2013 calculation.  Additionally, the expansion of the look back period reduces the volatility associated with improperly weighting short-term trends in this calculation. These changes more accurately represent the Company’s incurred and expected losses at March 31, 2013 by individual loan segment.

At March 31, 2013 and December 31, 2012, the ending balance in the allowance for loan losses disaggregated by class and impairment methodology follows below (in thousands). Also shown below are total loans at March 31, 2013 and December 31, 2012 disaggregated by class and impairment methodology (in thousands).

12

March 31, 2013	Commercial and industrial		Commercial real estate		Real estate construction		Residential mortgages (1st and 2nd liens)		Home equity		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	437	$	-	$	-	$	618	$	165	$	56	$	-	$	1,276
Ending balance: collectively evaluated for impairment		4,908		6,570		845		1,823		759		189		1,464		16,558
Ending balance	$	5,345	$	6,570	$	845	$	2,441	$	924	$	245	$	1,464	$	17,834
Loan balances:
Ending balance: individually evaluated for impairment	$	10,545	$	8,238	$	840	$	4,976	$	750	$	324	$	-	$	25,673
Ending balance: collectively evaluated for impairment		177,230		391,032		13,235		141,991		62,713		12,525		-		798,726
Ending balance	$	187,775	$	399,270	$	14,075	$	146,967	$	63,463	$	12,849	$	-	$	824,399
December 31, 2012	Commercial and industrial		Commercial real estate		Real estate construction		Residential mortgages (1st and 2nd liens)		Home equity		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	340	$	22	$	1	$	575	$	86	$	-	$	-	$	1,024
Ending balance: collectively evaluated for impairment		5,841		6,127		140		1,001		821		189		2,638		16,757
Ending balance	$	6,181	$	6,149	$	141	$	1,576	$	907	$	189	$	2,638	$	17,781
Loan balances:
Ending balance: individually evaluated for impairment	$	10,369	$	9,443	$	1,961	$	4,660	$	502	$	21	$	-	$	26,956
Ending balance: collectively evaluated for impairment		158,340		359,828		13,508		141,915		65,966		14,267		-		753,824
Ending balance	$	168,709	$	369,271	$	15,469	$	146,575	$	66,468	$	14,288	$	-	$	780,780

13

The following table presents certain information pertaining to the Company’s impaired loans disaggregated by class at March 31, 2013 and December 31, 2012 (in thousands):

	March 31, 2013						December 31, 2012
	Impaired Loans						Impaired Loans
	Unpaid Principal Balance		Recorded Balance		Allowance Allocated		Unpaid Principal Balance		Recorded Balance		Allowance Allocated
With no allowance recorded:
Commercial and industrial	$	8,887	$	8,887	$	-	$	7,913	$	7,492	$	-
Commercial real estate		9,223		8,238		-		8,859		7,282		-
Real estate construction		840		840		-		1,334		1,305		-
Residential mortgages (1st and 2nd liens)		2,335		2,206		-		1,918		1,788		-
Home equity		572		572		-		418		416		-
Consumer		166		166		-		21		21		-
Subtotal		22,023		20,909		-		20,463		18,304		-
With an allowance recorded:
Commercial and industrial		1,960		1,658		437		2,884		2,877		340
Commercial real estate		-		-		-		2,161		2,161		22
Real estate construction		-		-		-		656		656		1
Residential mortgages (1st and 2nd liens)		2,896		2,770		618		3,015		2,872		575
Home equity		178		178		165		86		86		86
Consumer		158		158		56		-		-		-
Subtotal		5,192		4,764		1,276		8,802		8,652		1,024
Total	$	27,215	$	25,673	$	1,276	$	29,265	$	26,956	$	1,024

The following table presents additional information pertaining to the Company’s impaired loans disaggregated by class for the three months ended March 31, 2013 and 2012 (in thousands):

	Three Months Ended March 31, 2013						Three Months Ended March 31, 2012
	Impaired Loans						Impaired Loans
	Average recorded investment in impaired loans		Interest income recognized on impaired loans		Interest income recognized on a cash basis on impaired loans		Average recorded investment in impaired loans		Interest income recognized on impaired loans		Interest income recognized on a cash basis on impaired loans
Commercial and industrial	$	10,947	$	57	$	-	$	29,678	$	265	$	-
Commercial real estate		11,090		69		-		73,791		325		-
Real estate construction		1,401		-		-		12,609		181		-
Residential mortgages (1st and 2nd liens)		5,004		42		-		8,463		-		-
Home equity		751		3		-		3,993		-		-
Consumer		318		5		-		675		-		-
Total	$	29,511	$	176	$	-	$	129,209	$	771	$	-

TDRs involve modifications or renewals where the Company has granted a concession to a borrower in financial distress. The Company reviews all modifications and renewals for determination of TDR status. The Company allocated $1 million and $800 thousand of specific reserves to customers whose loan terms have been modified in TDRs as of March 31, 2013 and December 31, 2012, respectively. These loans involved the restructuring of terms to allow customers to mitigate the risk of foreclosure by meeting a lower payment requirement based upon their current cash flow. These may also include loans that renewed at existing contractual rates, but below market rates for comparable credit.

A total of $38 thousand and $35 thousand were committed to be advanced in connection with TDRs as of March 31, 2013 and December 31, 2012, respectively, representing the amount the Company is legally required to advance under existing loan agreements. These loans are not in default under the terms of the loan agreements and are accruing. It is the Company’s policy to evaluate advances on such loans on a case by case basis. Absent a legal obligation to advance pursuant to the terms of the loan agreement, the Company generally will not advance funds for which it has outstanding commitments, but may do so in certain circumstances.

14

The following tables present certain information regarding outstanding TDRs at March 31, 2013 and December 31, 2012 (dollars in thousands), TDRs executed during the three months ended March 31, 2013 and 2012 (dollars in thousands) and TDRs with payment defaults of 90 days or more within twelve months of restructuring during the three months ended March 31, 2013 and 2012 (dollars in thousands):

	March 31, 2013				December 31, 2012
Total Troubled Debt Restructurings	Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance
Commercial and industrial		42	$	6,400		41	$	6,468
Commercial real estate		8		5,072		9		6,238
Residential mortgages (1st and 2nd liens)		18		4,441		15		3,587
Consumer		5		324		5		311
		73	$	16,237		70	$	16,604

	Three months ended						Three months ended
	March 31, 2013						March 31, 2012
			Pre-Modification		Post-Modification				Pre-Modification		Post-Modification
	Number		Outstanding		Outstanding		Number		Outstanding		Outstanding
New Troubled Debt	of		Recorded		Recorded		of		Recorded		Recorded
Restructurings	Loans		Balance		Balance		Loans		Balance		Balance
Commercial and industrial		2	$	320	$	320		9	$	3,316	$	3,316
Residential mortgages (1st and 2nd liens)		3		905		905		-		-		-
Consumer		1		17		17		-		-		-
		6	$	1,242	$	1,242		9	$	3,316	$	3,316

	Three months ended				Three months ended
	March 31, 2013				March 31, 2012
			Outstanding				Outstanding
	Number		Recorded		Number		Recorded
Defaulted Troubled Debt Restructurings	of Loans		Balance		of Loans		Balance
Commercial and industrial		-	$	-		1	$	15
Residential mortgages (1st and 2nd liens)		-		-		1		494
		-	$	-		2	$	509

Not all loan modifications are TDRs. In some cases, the Company might provide a concession, such as a reduction in interest rate, but the borrower is not experiencing financial distress. This could be the case if the Company is matching a competitor’s interest rate.

15

The following table presents information regarding modifications and renewals executed during the three months ended March 31, 2013 and 2012 that are not considered TDRs (dollars in thousands):

	Three months ended				Three months ended
	March 31, 2013				March 31, 2012
			Outstanding				Outstanding
	Number		Recorded		Number		Recorded
Modifications Not Considered TDRs	of Loans		Balance		of Loans		Balance
Commercial and industrial		-	$	-		1	$	580
Commercial real estate		11		19,703		2		3,179
		11	$	19,703		3	$	3,759

The following is a summary of information pertaining to non-performing assets at March 31, 2013 and December 31, 2012 (in thousands):

	March 31,		December 31,
	2013		2012
Non-accrual loans	$	14,420	$	16,435
Non-accrual loans held-for-sale		-		907
Loans 90 days past due and still accruing		-		-
OREO		372		1,572
Total non-performing assets	$	14,792	$	18,914
TDRs accruing interest	$	10,247	$	9,954
TDRs nonaccruing	$	5,990	$	6,650

The following table summarizes non-accrual loans by loan class at March 31, 2013 and December 31, 2012 (dollars in thousands):

	Non-accrual Loans
						Total		% of								Total		% of
			% of			Loans		Total					% of			Loans		Total
	3/31/2013		Total			3/31/2013		Loans			12/31/2012		Total			12/31/2012		Loans
Commercial and industrial	$	6,746		46.8	%	$	187,775		0.8	%	$	6,529		39.8	%	$	168,709		0.8	%
Commercial real estate		3,972		27.5			399,270		0.5			5,192		31.6			369,271		0.7
Real estate construction		840		5.8			14,075		0.1			1,961		11.9			15,469		0.3
Residential mortgages (1st and 2nd liens)		2,336		16.2			146,967		0.3			2,466		15.0			146,575		0.3
Home equity		514		3.6			63,463		-			266		1.6			66,468		-
Consumer		12		0.1			12,849		-			21		0.1			14,288		-
Total non-accrual loans	$	14,420		100.0	%	$	824,399		1.7	%	$	16,435		100.0	%	$	780,780		2.1	%

For the non-accrual loans outstanding at the end of the reported periods, additional interest income of approximately $406 thousand and $1.4 million would have been recorded on non-accrual loans during the three months ended March 31, 2013 and 2012, respectively, if the loans had performed in accordance with their original terms.

16

The following table details the collateral value securing non-accrual loans at March 31, 2013 and December 31, 2012 (in thousands):

	March 31, 2013				December 31, 2012
	Non-accrual Loans				Non-accrual Loans
	Principal Balance		Collateral Value		Principal Balance		Collateral Value
Commercial and industrial (1)	$	6,746	$	5,163	$	6,529	$	4,400
Commercial real estate		3,972		10,490		5,192		12,675
Real estate construction		840		3,310		1,961		3,661
Residential mortgages (1st and 2nd liens)		2,336		3,511		2,466		5,141
Home equity		514		1,436		266		849
Consumer		12		-		21		-
Total	$	14,420	$	23,910	$	16,435	$	26,726

(1) Repayment of commercial and industrial loans is expected primarily from the cash flow of the business. The collateral typically securing these loans is a lien on all corporate assets via a blanket UCC filing and does not usually include real estate. For purposes of this disclosure, the Company has ascribed no value to the non-real estate collateral for this class of loans.

At March 31, 2013 and December 31, 2012, past due loans disaggregated by class were as follows (in thousands):

	Past Due
March 31, 2013	30 - 59 days		60 - 89 days		90 days and over		Total		Current		Total
Commercial and industrial	$	382	$	370	$	6,746	$	7,498	$	180,277	$	187,775
Commercial real estate		1,339		-		3,972		5,311		393,959		399,270
Real estate construction		-		-		840		840		13,235		14,075
Residential mortgages
(1st and 2nd liens)		2,540		-		2,336		4,876		142,091		146,967
Home equity		1,356		496		514		2,366		61,097		63,463
Consumer		79		1		12		92		12,757		12,849
Total	$	5,696	$	867	$	14,420	$	20,983	$	803,416	$	824,399
	Past Due
December 31, 2012	30 - 59 days		60 - 89 days		90 days and over		Total		Current		Total
Commercial and industrial	$	6,591	$	1,274	$	6,529	$	14,394	$	154,315	$	168,709
Commercial real estate		1,145		329		5,192		6,666		362,605		369,271
Real estate construction		1,382		-		1,961		3,343		12,126		15,469
Residential mortgages
(1st and 2nd liens)		2,867		6		2,466		5,339		141,236		146,575
Home equity		261		100		266		627		65,841		66,468
Consumer		189		18		21		228		14,060		14,288
Total	$	12,435	$	1,727	$	16,435	$	30,597	$	750,183	$	780,780

The Bank utilizes an eight-grade risk-rating system for commercial and industrial loans, commercial real estate and construction loans. Loans in risk grades 1- 4 are considered “pass” loans. The Bank’s risk grades are as follows:

Risk Grade 1 – Excellent. Loans secured by liquid collateral such as certificates of deposit, reputable bank letters of credit, or other cash equivalents; loans that are guaranteed or otherwise backed by the full faith and credit of the United States government or an agency thereof, such as the Small Business Administration; or loans to any publicly held company with a current long-term debt rating of A or better.

Risk Grade 2 – Good. Loans to businesses that have strong financial statements containing an unqualified opinion from a CPA firm and at least three consecutive years of profits; loans supported by un-audited financial statements containing strong balance sheets, five consecutive years of profits, a five-year satisfactory relationship with the Bank, and key balance sheet and income statement trends that are either stable or positive; loans secured by publicly traded marketable securities where there is no impediment to liquidation; loans to individuals backed by liquid personal assets, established credit history, and unquestionable character; or loans to publicly held companies with current long-term debt ratings of Baa or better.

17

Risk Grade 3 – Satisfactory. Loans supported by financial statements (audited or un-audited) that indicate average or slightly below average risk and having some deficiency or vulnerability to changing economic conditions; loans with some weakness but offsetting features of other support are readily available; loans that are meeting the terms of repayment, but which may be susceptible to deterioration if adverse factors are encountered. Loans may be graded Satisfactory when there is no recent information on which to base a current risk evaluation and the following conditions apply:

· At inception, the loan was properly underwritten, did not possess an unwarranted level of credit risk, and the loan met the above criteria for a risk grade of Excellent, Good, or Satisfactory.

· At inception, the loan was secured with collateral possessing a loan value adequate to protect the Bank from loss.

· The loan has exhibited two or more years of satisfactory repayment with a reasonable reduction of the principal balance.

· During the period that the loan has been outstanding, there has been no evidence of any credit weakness. Some examples of weakness include slow payment, lack of cooperation by the borrower, breach of loan covenants, or

· The borrower is in an industry known to be experiencing problems. If any of these credit weaknesses is observed, a lower risk grade may be warranted.

Risk Grade 4 - Satisfactory/Monitored. Loans in this category are considered to be of acceptable credit quality, but contain greater credit risk than satisfactory loans due to weak balance sheets, marginal earnings or cash flow, or other uncertainties. These loans warrant a higher than average level of monitoring to ensure that weaknesses do not advance. The level of risk in a Satisfactory/Monitored loan is within acceptable underwriting guidelines so long as the loan is given the proper level of management supervision.

Risk Grade 5 - Special Mention. Loans which possess some credit deficiency or potential weakness which deserves close attention. Such loans pose an unwarranted financial risk that, if not corrected, could weaken the loan by adversely impacting the future repayment ability of the borrower. The key distinctions of a Special Mention classification are that (1) it is indicative of an unwarranted level of risk and (2) weaknesses are considered “potential,” not “defined,” impairments to the primary source of repayment.

Risk Grade 6 – Substandard. One or more of the following characteristics may be exhibited in loans classified Substandard:

· Loans which possess a defined credit weakness. The likelihood that a loan will be paid from the primary source of repayment is uncertain. Financial deterioration is under way and very close attention is warranted to ensure that the loan is collected without loss.

· Loans are inadequately protected by the current net worth and paying capacity of the obligor.

· The primary source of repayment is gone, and the Bank is forced to rely on a secondary source of repayment, such as collateral liquidation or guarantees.

· Loans have a distinct possibility that the Bank will sustain some loss if deficiencies are not corrected.

· Unusual courses of action are needed to maintain a high probability of repayment.

· The borrower is not generating enough cash flow to repay loan principal; however, it continues to make interest payments.

· The lender is forced into a subordinated or unsecured position due to flaws in documentation.

· Loans have been restructured so that payment schedules, terms, and collateral represent concessions to the borrower when compared to the normal loan terms.

· The lender is seriously contemplating foreclosure or legal action due to the apparent deterioration in the loan.

· There is a significant deterioration in market conditions to which the borrower is highly vulnerable.

18

Risk Grade 7 – Doubtful. One or more of the following characteristics may be present in loans classified Doubtful:

· Loans have all of the weaknesses of those classified as Substandard. However, based on existing conditions, these weaknesses make full collection of principal highly improbable.

· The primary source of repayment is gone, and there is considerable doubt as to the quality of the secondary source of repayment.

· The possibility of loss is high but because of certain important pending factors which may strengthen the loan, loss classification is deferred until the exact status of repayment is known.

Risk Grade 8 – Loss. Loans are considered uncollectible and of such little value that continuing to carry them as assets is not feasible. Loans will be classified Loss when it is neither practical nor desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.

At March 31, 2013 and December 31, 2012, based upon the most recent analysis performed, the following table presents the Company’s loan portfolio credit risk profile by internally assigned grade disaggregated by class of loan (in thousands):

	Credit Risk Profile By Internally Assigned Grade
March 31, 2013	Commercial and industrial		Commercial real estate		Real estate construction		Residential mortgages (1st and 2nd liens)		Home equity		Consumer		Total
Grade:
Pass	$	163,819	$	353,080	$	5,283	$	141,991	$	62,949	$	12,530	$	739,652
Special mention		4,969		25,627		-		-		-		-		30,596
Substandard		18,987		20,563		8,792		4,976		514		319		54,151
Total	$	187,775	$	399,270	$	14,075	$	146,967	$	63,463	$	12,849	$	824,399
	Credit Risk Profile By Internally Assigned Grade
December 31, 2012	Commercial and industrial		Commercial real estate		Real estate construction		Residential mortgages (1st and 2nd liens)		Home equity		Consumer		Total
Grade:
Pass	$	143,804	$	311,123	$	4,790	$	141,915	$	65,966	$	14,267	$	681,865
Special mention		5,995		38,670		-		-		-		-		44,665
Substandard		18,910		19,478		10,679		4,660		502		21		54,250
Total	$	168,709	$	369,271	$	15,469	$	146,575	$	66,468	$	14,288	$	780,780

The Bank annually reviews the ratings on all commercial and industrial, commercial real estate and real estate construction loans greater than $1 million. Semi-annually, the Bank engages an independent third-party to review a significant portion of loans within these loan classes. Management uses the results of these reviews as part of its ongoing review process.

5. RETIREMENT PLAN

The Company’s retirement plan is noncontributory and covers substantially all eligible employees. The plan conforms to the provisions of the Employee Retirement Income Security Act of 1974, as amended, and the Pension Protection Act of 2006, which requires certain funding rules for defined benefit plans. The Company’s policy is to accrue for all pension costs and to fund the maximum amount allowable for tax purposes. Actuarial gains and losses that arise from changes in assumptions concerning future events are amortized over a period that reflects the long-term nature of pension expense used in estimating pension costs.

19

The Company accounts for its retirement plan in accordance with ASC 715, “Compensation – Retirement Benefits” and ASC 960, “Plan Accounting – Defined Benefit Pension Plans,” which require an employer that is a business entity and sponsors one or more single-employer defined benefit plans to recognize the funded status of a benefit plan in its statement of financial position; recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost; measure defined benefit plan assets and obligation as of the date of fiscal year-end statement of financial position (with limited exceptions); and disclose in the notes to financial statements additional information about certain effects of net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset and obligation. Plan assets and benefit obligations shall be measured as of the date of its statement of financial position and in determining the amount of net periodic benefit cost. The codification also requires an employer to use the same date for the measurement of plan assets as for the statement of condition.

On December 31, 2012, certain provisions of the Company’s retirement plan were changed which affected all participants in this plan and froze the participation of new entrants into the pension plan for all remaining employees in 2012. These changes froze the plan such that no additional pension benefits would accumulate.

The following table presents information concerning net periodic defined benefit pension (income) expense for the three months ended March 31, 2013 and 2012 (in thousands):

	Three Months Ended
	March 31, 2013			March 31, 2012
Service cost	$	-		$	603
Interest cost		498			555
Expected return on plan assets		(575	)		(527	)
Net amortization		61			160
Net periodic benefit (income) expense	$	(16	)	$	791

In December 2012, the Company made an annual minimum contribution of $1 million for the plan year ending September 30, 2013. There is no additional minimum required contribution for the plan year ending September 30, 2013.

6. STOCK-BASED COMPENSATION

Under the terms of the Company’s stock option plans adopted in 1999 and 2009, options have been granted to key employees and directors to purchase shares of the Company’s stock. Under the 2009 Stock Incentive Plan (“the Plan”), there are 500,000 shares of the Company’s common stock reserved for issuance, of which 175,000 had been granted as of March 31, 2013. There are no remaining shares reserved for issuance under the 1999 Stock Option Plan. Options are awarded by the Compensation Committee of the Board of Directors. Both plans provide that the option price shall not be less than the fair value of the common stock on the date the option is granted. All options are exercisable for a period of ten years or less. Options granted prior to 2010 vest after one year. No options were granted in 2010. Options granted in 2011 are exercisable over a three-year period commencing three years from the date of grant at a rate of one third per year.  Options granted in 2012 and 2013 are exercisable over a three-year period commencing one year from the date of grant at a rate of one third per year.

Both plans provide for but do not require the grant of stock appreciation rights (“SARs”) that the holder may exercise instead of the underlying option. At March 31, 2013, there were 6,000 SARs outstanding related to options granted before 2011. The SARs had no intrinsic value at March 31, 2013. When the SAR is exercised, the underlying option is canceled. The optionee receives shares of common stock or cash with a fair market value equal to the excess of the fair value of the shares subject to the option at the time of exercise (or the portion thereof so exercised) over the aggregate option price of the shares set forth in the option agreement. The exercise of SARs is treated as the exercise of the underlying option.

In 2011 the Company granted an award of 30,000 non-qualified stock options at an exercise price of $10.79 per share to its President and Chief Executive Officer as a material inducement to employment with the Company.  The non-qualified options were not issued as part of any of the Company’s registered stock-based compensation plans. The options are exercisable over a three-year period commencing three years from the date of grant at a rate of one third per year.

20

A summary of stock option activity follows:

				Weighted-Average
	Number			Exercise Price
	of Shares			Per Share
Outstanding - January 1, 2013		211,500		$	15.41
Granted		25,000		$	14.26
Exercised		-			-
Forfeited or expired		(25,333	)	$	15.50
Outstanding - March 31, 2013		211,167		$	15.26

The following table presents information regarding stock options granted in 2013:

Black-Scholes Assumptions for Options Granted During the Three Months Ended March 31, 2013:
Risk-free interest rate	0.81	%
Expected dividend yield	-
Expected life in years	10
Expected volatility	43.11	%

The following summarizes shares subject to purchase from stock options outstanding and exercisable as of March 31, 2013:

	Outstanding					Exercisable
			Weighted-Average					Weighted-Average
Range of			Remaining	Weighted-Average				Remaining	Weighted-Average
Exercise Prices	Shares		Contractual Life	Exercise Price		Shares		Contractual Life	Exercise Price
$10.79 - $12.44		100,000	8.9 years	$	11.49		6,667	8.9 years	$	12.44
$13.13 - $14.97		81,667	9.3 years	$	13.80		20,001	9.0 years	$	13.34
$28.30 - $31.83		15,000	4.1 years	$	30.24		15,000	4.1 years	$	30.24
$32.90 - $34.95		14,500	2.9 years	$	34.01		14,500	2.9 years	$	34.01
		211,167	8.3 years	$	15.26		56,168	6.1 years	$	23.08

The Company accounts for stock-based compensation on a modified prospective basis with the fair value of grants of employee stock options recognized in the financial statements. Compensation expense related to stock-based compensation amounted to approximately $82 thousand and $27 thousand for the three months ended March 31, 2013 and 2012, respectively. The remaining unrecognized compensation cost of approximately $635 thousand at March 31, 2013 will be expensed over the remaining weighted average vesting period of 2.8 years.

7. INCOME TAXES

The Company uses an asset and liability approach to accounting for income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred tax assets are recognized if it is more likely than not that a future benefit will be realized. The Company accounts for income taxes in accordance with ASC 740, “Income Taxes,” which prescribes the recognition and measurement criteria related to tax positions taken or expected to be taken in a tax return. The Company had unrecognized tax benefits including interest of approximately $34 thousand as of March 31, 2013. The Company recognizes interest and penalties accrued relating to unrecognized tax benefits in income tax expense.

The realization of deferred tax assets (net of a recorded valuation allowance) is largely dependent upon future taxable income, future reversals of existing taxable temporary differences and the ability to carryback losses to available tax years. In assessing the need for a valuation allowance, the Company considers positive and negative evidence, including taxable income in carry-back years, scheduled reversals of deferred tax liabilities, expected future taxable income and tax planning strategies. The Company can apply a carryback of the net operating losses for 2012 which resulted in $5 million included in income tax receivable in the accompanying consolidated statements of condition. The Company has net operating loss carryforwards of approximately $13.9 million and $24.1 million for Federal and New York State (“NYS”) income tax purposes, respectively, which may be applied against future taxable income. In 2012, the Company established a full valuation reserve of $558 thousand, tax effected, on the NYS net operating loss due to the Company’s significant tax-exempt investment income in NYS. The valuation allowance may be reversed to income in future periods to the extent that the related deferred tax assets are realized or when the Company returns to consistent, taxable earnings in NYS. Management believes it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with the tax effects of the deferred tax liabilities, will be sufficient to fully recover the remaining deferred tax assets. Both the Federal and NYS unused net operating loss carryforwards are expected to expire in varying amounts in the year 2032. It is anticipated that the Federal carryforward will be utilized prior to its expiration based on the Company’s future years’ projected earnings.

21

8. REGULATORY MATTERS

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital requirements that involve quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. The Company’s and the Bank’s capital amounts and the Bank’s classification are also subject to qualitative judgments by the regulators about components, risk weighting, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of total and Tier 1 capital, as defined in the federal banking regulations, to risk-weighted assets and of Tier 1 capital to adjusted average assets (leverage). Management believes, as of March 31, 2013, that the Company and the Bank met all such capital adequacy requirements to which it is subject.

The Bank’s capital amounts and ratios were as follows (dollars in thousands):

						Minimum					Minimum to be "Well
						for capital					Capitalized" under prompt
	Actual capital ratios					adequacy					corrective action provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of March 31, 2013
Total capital to risk-weighted assets	$	165,759		17.53	%	$	75,625		8.00	%	$	94,531		10.00	%
Tier 1 capital to risk-weighted assets		153,865		16.28	%		37,812		4.00	%		56,719		6.00	%
Tier 1 capital to adjusted average assets (leverage)		153,865		9.77	%		62,997		4.00	%		78,746		5.00	%
As of December 31, 2012
Total capital to risk-weighted assets	$	162,458		18.05	%	$	72,020		8.00	%	$	90,025		10.00	%
Tier 1 capital to risk-weighted assets		151,121		16.79	%		36,010		4.00	%		54,015		6.00	%
Tier 1 capital to adjusted average assets (leverage)		151,121		9.74	%		62,092		4.00	%		77,615		5.00	%

The Company’s Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios were 9.83%, 16.37% and 17.63%, respectively, at March 31, 2013.

On October 25, 2010, the Bank, following discussion with the OCC entered into the Agreement. The Agreement requires the Bank to take certain actions to address issues identified by the OCC. As of March 31, 2013, management believes it has taken significant steps to satisfy the requirements of the Agreement.

Under the Agreement, the Bank is subject to individual minimum capital ratios (“IMCRs”) established by the OCC requiring Tier 1 leverage capital equal to at least 8.00% of adjusted average assets, Tier 1 risk-based capital equal to at least 10.50% of risk-weighted assets and total risk-based capital equal to at least 12.00% of risk-weighted assets. Management believes the Bank met all three IMCRs at March 31, 2013. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements.

While subject to the Agreement, the Company expects that its and the Bank’s management and Board of Directors will be required to focus a substantial amount of time on complying with its terms.  There is no guarantee that the Bank will be able to fully comply with the Agreement. If the Bank fails to comply with the terms of the Agreement, it could be subject to further regulatory enforcement actions.

The ability of the Bank to pay dividends to the Company is subject to certain regulatory restrictions. Generally, dividends declared in a given year by a national bank are limited to its net profit, as defined by regulatory agencies, for that year, combined with its retained net income for the preceding two years, less any required transfer to surplus or to fund the retirement of any preferred stock, of which the Bank had none as of March 31, 2013. In addition, a national bank may not pay any dividends in an amount greater than its undivided profits and a national bank may not declare any dividends if such declaration would leave the Bank inadequately capitalized. Therefore, the ability of the Bank to declare dividends will depend on its future net income and capital requirements. In addition, under the Agreement the Bank is required to establish a dividend policy that will permit the declaration of a dividend only when the Bank is in compliance with its capital program and with the prior written determination of no supervisory objection by the OCC.

22

9. FAIR VALUE

The Company records investments available for sale, loans held-for-sale, certain impaired loans, OREO and mortgage servicing rights at fair value. Fair value measurement is determined based on the assumptions that market participants would use in pricing the asset or liability in an exchange. The definition of fair value includes the exchange price which is the price in an orderly transaction between market participants to sell an asset or transfer a liability in the principal market for the asset or liability. Market participant assumptions include assumptions about risk, the risk inherent in a particular valuation technique used to measure fair value and/or the risk inherent in the inputs to the valuation technique, as well as the effect of credit risk on the fair value of liabilities. The Company uses three levels of the fair value inputs to measure assets, as described below.

Basis of Fair Value Measurement:

Level 1 – Valuations based on quoted prices in active markets for identical investments.

Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Level 2 inputs include: (i) quoted prices for similar investments in active markets, (ii) quoted prices for identical investments traded in non-active markets (i.e., dealer or broker markets) and (iii) inputs other than quoted prices that are observable or inputs derived from or corroborated by market data for substantially the full term of the investment.

Level 3 – Valuations based on inputs that are unobservable, supported by little or no market activity, and significant to the overall fair value measurement.

The types of instruments valued based on quoted market prices in active markets include most U.S. Treasury securities. Such instruments are generally classified within Level 1 and Level 2 of the fair value hierarchy. The Company does not adjust the quoted price for such instruments.

The types of instruments valued based on quoted prices in markets that are not active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency include U.S. Government agency securities, state and municipal obligations, MBS, CMOs and corporate bonds. Such instruments are generally classified within Level 2 of the fair value hierarchy.

The types of instruments valued based on significant unobservable inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability are generally classified within Level 3 of the fair value hierarchy.

ASC 820, “Fair Value Measurements and Disclosures,” presents requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value.” ASC 820 provides additional guidance in determining fair values when the volume and level of activity for the asset or liability have significantly decreased, particularly when there is no active market or where the price inputs being used represent distressed sales. It also provides guidelines for making fair value measurements more consistent with principles, reaffirming the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets become inactive.

23

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments (in thousands).

	Level in	March 31, 2013				December 31, 2012
	Fair Value	Carrying		Estimated		Carrying		Estimated
	Heirarchy	Amount		Fair Value		Amount		Fair Value
Cash and due from banks	Level 1	$	302,529	$	302,529	$	384,656	$	384,656
Cash equivalents	Level 2		1,150		1,150		1,150		1,150
Federal Reserve Bank, Federal Home Loan Bank and other stock	N/A		3,043		N/A		3,043		N/A
Investment securities held to maturity	Level 2		7,871		8,662		8,035		8,861
Investment securities available for sale	Level 2		413,277		413,277		402,353		402,353
Loans held-for-sale	Level 3		2,494		2,494		907		907
Loans, net of allowance	Level 2, 3 (1)		806,565		826,342		762,999		787,597
Accrued interest and loan fees receivable	Level 2		5,746		5,746		4,883		4,883
Non-maturity deposits	Level 2		1,153,942		1,153,942		1,187,383		1,187,383
Time deposits	Level 2		249,816		251,423		243,731		245,595
Accrued interest payable	Level 2		235		235		237		237

(1) Impaired loans are generally classified within Level 3 of the fair value hierarchy.

Fair value estimates are made at a specific point in time and may be based on judgments regarding losses expected in the future, risk, and other factors that are subjective in nature. The methods and assumptions used to produce the fair value estimates follow.

Short-term financial instruments are valued at the carrying amounts included in the condensed consolidated statements of condition, which are reasonable estimates of fair value due to the relatively short term nature of the instruments. This approach applies to cash and cash equivalents, accrued interest and loan fees receivable, non-interest-bearing demand deposits, N.O.W., money market and saving deposits and accrued interest payable. Certificates of deposit are valued using a replacement cost of funds approach.

Fair values are estimated for portfolios of loans with similar characteristics. The fair value of performing loans was calculated by discounting projected cash flows through their estimated maturity using market discount rates that reflect the general credit and interest rate characteristics of the loan category. The maturity horizon is based on the Bank’s history of repayments for each type of loan and an estimate of the effect of current economic conditions. Fair value for significant non-performing loans is based on recent external appraisals of collateral, if any. If appraisals are not available, estimated cash flows are discounted using a rate commensurate with the associated risk. Assumptions regarding credit risk, cash flows, and discount rates are made using availablemarket information and specific borrower information.

OREO properties are initially recorded at fair value, less estimated costs to sell when acquired, establishing a new cost basis. Adjustments to OREO are measured at fair value, less estimated costs to sell. Fair values are generally based on third party appraisals or realtor evaluations of the property. These appraisals and evaluations may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less estimated costs to sell, an impairment loss is recognized through a valuation allowance, and the property is reported as non-recurring Level 3.

Loans identified as impaired are measured using one of three methods: the loan’s observable market price, the fair value of collateral or the present value of expected future cash flows. Those measured using the loan’s observable market price or the fair value of collateral are recorded at fair value. For each period presented, no impaired loans were measured using the loan’s observable market price. If an impaired loan has had a charge-off or if the fair value of the collateral is less than the recorded investment in the loan, the Company establishes a specific reserve and reports the loan as non-recurring Level 3. The fair value of collateral of impaired loans is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

The fair value of loans held-for-sale is based upon binding contracts from third party investors.

The fair value of commitments to extend credit was estimated by either discounting cash flows or using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the current creditworthiness of the counter-parties. The estimated fair value of written financial guarantees and letters of credit is based on fees currently charged for similar agreements. The fees charged for the commitments were not material in amount.

24

Assets measured at fair value on a recurring basis are as follows (in thousands):

			Fair Value Measurements Using
			Significant Other		Significant
			Observable Inputs		Unobservable Inputs
Assets:	March 31, 2013		(Level 2)		(Level 3)
U.S. Government Agency securities	$	75,388	$	75,388	$	-
Corporate bonds		18,854		18,854		-
Collateralized mortgage obligations		66,104		66,104		-
Mortgage-backed securities		86,379		86,379		-
Obligations of states and political subdivisions		166,552		166,552		-
Loans held-for-sale		2,494		-		2,494
Mortgage servicing rights		2,039		-		2,039
Total	$	417,810	$	413,277	$	4,533
			Fair Value Measurements Using
			Significant Other		Significant
			Observable Inputs		Unobservable Inputs
Assets:	December 31, 2012		(Level 2)		(Level 3)
U.S. Treasury Securities	$	500	$	500	$	-
U.S. Government Agency securities		65,078		65,078		-
Corporate bonds		16,198		16,198		-
Collateralized mortgage obligations		89,692		89,692		-
Mortgage-backed securities		62,450		62,450		-
Obligations of states and political subdivisions		168,435		168,435		-
Loans held-for-sale		907		-		907
Mortgage servicing rights		1,856		-		1,856
Total	$	405,116	$	402,353	$	2,763

Assets measured at fair value on a non-recurring basis are as follows (in thousands):

			Fair Value Measurements Using
			Significant
			Unobservable
			Inputs
Assets:	March 31, 2013		(Level 3)
Impaired loans	$	9,805	$	9,805
OREO		372		372
Total	$	10,177	$	10,177
			Fair Value Measurements Using
			Significant
			Unobservable
			Inputs
Assets:	December 31, 2012		(Level 3)
Impaired loans	$	9,390	$	9,390
OREO		1,572		1,572
Total	$	10,962	$	10,962

25

10. LEGAL PROCEEDINGS

On July 11, 2011, a shareholder derivative action, Robert J. Levy v. J. Gordon Huszagh, et al., No. 11 Civ. 3321 (JS), was filed in the U.S. District Court for the Eastern District of New York against certain current and former directors of the Company and a former officer of the Company.  The Company was named as a nominal defendant.  The complaint seeks damages against the individual defendants in an unspecified amount, and alleges that the individual defendants breached their fiduciary duties by making improper statements regarding the sufficiency of the Company’s allowance for loan losses and loan portfolio credit quality, and by failing to establish sufficient allowances for loan losses and to establish effective credit risk management policies.  On September 30, 2011, the Company and the current and former director defendants filed a motion to dismiss the complaint. On September 28, 2012, the court granted the motion to dismiss and granted the plaintiff leave to file an amended complaint. On April 22, 2013, the parties filed a joint status report informing the court that they had reached an agreement in principle for the joint settlement of this action and the Forbush action, described below.  Management does not believe that the ultimate resolution of this matter will have a material adverse impact on the consolidated financial statements.

On October 28, 2011, a separate shareholder derivative action, Susan Forbush v. Edgar F. Goodale, et al., No. 33538/11, was filed in the Supreme Court of the State of New York for the County of Suffolk, against certain current and former directors of the Company and a former officer of the Company. The Company was named as a nominal defendant. The complaint asserts claims that are substantially similar to those asserted in the Levy action. On February 17, 2012, the defendants filed a motion to dismiss the complaint. On February 4, 2013, the Supreme Court denied the defendants’ motion to dismiss. On April 24, 2013, the plaintiff informed the court that the parties had reached an agreement in principle for the joint settlement of this action and the Levy action, described above.  Management does not believe that the ultimate resolution of this matter will have a material adverse impact on the consolidated financial statements.

On October 20, 2011, a putative shareholder class action, James E. Fisher v. Suffolk Bancorp, et al., No. 11 Civ. 5114 (SJ), was filed in the U.S. District Court for the Eastern District of New York against the Company, its former chief executive officer, and a former chief financial officer of the Company.  The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by knowingly or recklessly making false statements about, or failing to disclose accurate information about, the Company’s financial results and condition, loan loss reserves, impaired assets, internal and disclosure controls, and banking practices.  The complaint seeks damages in an unspecified amount on behalf of purchasers of the Company’s common stock between March 12, 2010 and August 10, 2011. On October 15, 2012, the defendants filed a motion to dismiss the complaint. On April 8, 2013, the parties entered into an agreement to settle the action, subject to the approval of the court, and on April 10, 2013, the lead plaintiff filed an unopposed motion requesting the court’s preliminary approval of the settlement. The motion remains pending.  Management does not believe that the ultimate resolution of this matter will have a material adverse impact on the consolidated financial statements.

It is not possible at the current phases of these lawsuits to ascertain whether there is a reasonable possibility of a loss from these matters. Therefore we have concluded that an amount for a loss contingency is not to be accrued or disclosed at this time. The Company believes that it has substantial defenses to the claims filed against it in these lawsuits and, to the extent that these actions proceed, the Company intends to defend itself vigorously.

The SEC’s New York regional office has formally requested certain loan files, other records and information from the Company, and the Company is in the process of providing this information. The SEC has not asserted that any federal securities law violation has occurred. The Company believes it is in compliance with all federal securities laws and is cooperating with the SEC’s inquiry.

26

ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Safe Harbor Statement Pursuant to the Private Securities Litigation Reform Act of 1995 - Certain statements contained in this discussion are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These can include remarks about the Company, the banking industry, the economy in general, expectations of the business environment in which the Company operates, projections of future performance, and potential future credit experience. These remarks are based upon current management expectations, and may, therefore, involve risks and uncertainties that cannot be predicted or quantified and are beyond the Company’s control and are subject to a variety of uncertainties that could cause future results to vary materially from the Company’s historical performance, or from current expectations. These remarks may be identified by such forward-looking statements as “should,” “expect,” “believe,” “view,” “opportunity,” “allow,” “continues,” “reflects,” “typically,” “usually,” “anticipate,” or similar statements or variations of such terms. Factors that could affect the Company include particularly, but are not limited to: a failure by the Company to meet the deadlines under SEC rules for filing its periodic reports (or any permitted extension thereof); increased capital requirements mandated by the Company’s regulators; the Company’s ability to raise capital; changes in interest rates; increases or decreases in retail and commercial economic activity in the Company’s market area; variations in the ability and propensity of consumers and businesses to borrow, repay, or deposit money, or to use other banking and financial services; results of regulatory examinations; any failure by the Company to comply with the Agreement or the individual minimum capital ratios for the Bank established by the OCC; the cost of compliance with the Agreement; any failure by the Company to maintain effective internal control over financial reporting; larger-than-expected losses from the sale of assets; potential litigation or regulatory action relating to the matters resulting in the Company’s failure to file on time its Quarterly Report on Form10-Q for the quarters ended March 31, 2011, June 30, 2011, and September 30, 2011 or resulting from the revisions to earnings previously announced on April 12, 2011 or the restatement of its financial statements for the quarterly period ended September 30, 2010 and year ended December 31, 2010; and the potential that net charge-offs are higher than expected or for further increases in our provision for loan losses. Further, it could take the Company longer than anticipated to implement its strategic plans to increase revenue and manage non-interest expense, or it may not be possible to implement those plans at all. Finally, new and unanticipated legislation, regulation, or accounting standards may require the Company to change its practices in ways that materially change the results of operations. We have no obligation to update any forward-looking statements to reflect events or circumstances after the date of this document. For more information, see the risk factors described in the Company’s Annual Report on Form 10-K and other filings with the Securities and Exchange Commission.

Non-GAAP Disclosure - This discussion includes a non-GAAP financial measure of the Company’s tangible common equity ratio. A non-GAAP financial measure is a numerical measure of historical or future financial performance, financial position or cash flows that excludes or includes amounts that are required to be disclosed in the most directly comparable measure calculated and presented in accordance with GAAP. The Company believes that this non-GAAP financial measure provides both management and investors a more complete understanding of the underlying operational results and trends and the Company’s marketplace performance. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the numbers prepared in accordance with GAAP.

Executive Summary - The Company is a one-bank holding company engaged in the commercial banking business through the Bank, a full-service commercial bank headquartered in Riverhead, New York. Organized in 1890, the Bank has 30 branch offices in Suffolk County, New York, and is a wholly owned subsidiary of the Company. The Bank offers a full line of domestic commercial and retail banking services and wealth management services. The Bank’s primary lending area includes all of Suffolk County and to a limited degree the adjacent markets of Nassau County and New York City. The Bank makes commercial real estate floating and fixed rate loans, commercial and industrial loans to small manufacturers, wholesalers, builders, farmers, and retailers, including dealer financing. The Bank serves as an indirect lender to the customers of a number of automobile dealers. The Bank also makes loans secured by residential mortgages, and both fixed and floating rate second mortgage loans with a variety of plans for repayment. Real estate construction loans are also offered. In order to expand the Company geographically into western Suffolk and Nassau Counties and to diversify the lending business of the Company, a new loan production office was opened in Melville in 2012. Seasoned banking professionals have joined the Company to exploit the opportunity available in the local marketplace to augment both interest and fee income through the origination of commercial and industrial loans, the generation of high quality multi-family and jumbo mortgages to be retained in the portfolio and conforming mortgages for sale in secondary markets. The Bank finances most of its activities with deposits, including demand, saving, N.O.W. and money market deposits, as well as time deposits. It may also rely on other sources of funds, including inter-bank overnight loans.

The Agreement with the OCC - The Agreement requires the Bank to take certain actions, and set forth below are the requirements of the Agreement along with a description of the actions taken by the Bank to date to satisfy the requirements.  References to “Article” are to those sections of the Agreement setting forth the specific requirements for the issue being addressed.

1. Create a Compliance Committee which is to meet at least monthly to monitor and coordinate the Bank’s adherence to the provisions of the Agreement and make monthly reports to the Board of Directors.

The Bank has created a Compliance Committee consisting of members of the Board of Directors and of management which meets at least monthly to monitor and coordinate the Bank’s adherence to the provisions of the Agreement.  The Compliance Committee makes monthly reports to the Board.

2. Ensure the Bank has competent management in certain officer positions to carry out the Board’s policies, ensure compliance with the Agreement, applicable laws, rules and regulations and manage the daily operations of the Bank.

Upon receipt of the Agreement, the Board of Directors engaged qualified independent consultants to assist with compliance with the Agreement, including an assessment of key management roles. The Board has evaluated management and subsequently several strategic hires were made to ensure competent management.  (See staffing plan discussed in number 3 below.)

27

3. Develop a staffing plan that is consistent with the goals and objectives established in the Bank’s strategic plan that addresses the workload requirements and maintenance of an effective control environment.

A comprehensive staffing plan was established following receipt of the Agreement.  Since that time, the Bank has hired qualified management to fill certain key positions and has made other staffing and organization changes to effectively manage the operations of the Bank consistent with the Bank’s strategic plan.  Steps taken by the Bank include:

- Hired a new, qualified, and highly-experienced President and Chief Executive Officer effective December 31, 2011.

- Hired a new, qualified, and highly-experienced Chief Credit Officer during the first quarter of 2013.

- Hired a new, qualified, highly-experienced Chief Lending Officer during the first quarter of 2012.

- During the first quarter of 2012, hired a qualified and highly-experienced Chief Financial Officer with sufficient knowledge of U.S. GAAP, regulatory accounting and the banking industry and the skills to implement this knowledge.

- Improved credit function by hiring a new loan administrator, additional underwriting staff and a loan workout specialist.

- During the first quarter of 2012, hired a qualified and highly-experienced Comptroller with sufficient knowledge of U.S. GAAP, regulatory accounting and the banking industry and the skills to implement this knowledge.

- During the second quarter of 2012, hired a qualified and highly experienced General Counsel and Corporate Secretary with prior experience as general counsel of publicly held financial institutions.

- Appointed a Vice Chairman of the Board of Directors, who was subsequently named Chairman in May 2012, to provide daily oversight of management on behalf of the full Board and to communicate back to the Board.

- During the third quarter of 2012, created and filled the position of Financial Reporting Manager with experience in regulatory and SEC reporting.

- Created and filled the position of Treasurer to further relieve the Chief Financial Officer of day-to-day duties in asset liability management, investment portfolio management, and additional treasury functions.

- Outsourced the internal audit function to a qualified risk management firm to provide greater independence and depth to the function.

- This plan is updated annually.

All key executive and senior management positions necessaryto carry out the Board’s policies and to ensure compliance with the Agreement, applicable laws, rules and regulations and manage the daily operations of the Bank have been filled.

4. Adopt, implement, and thereafter ensure adherence to a three year written strategic plan.

A three year strategic plan incorporating all required elements of this Article, including monitoring of adherence to the strategic plan, has been approved and adopted by the Board of Directors.  This plan is updated annually.

5. Develop, implement, and thereafter ensure adherence to a three year capital program.

A three year capital program incorporating all required elements of this Article, including monitoring of adherence to the capital program, has been approved and adopted by the Board of Directors.  This plan is updated annually.

6. Adopt, implement, and thereafter ensure adherence to an independent internal audit program.

Management has outsourced the internal audit function to a qualified risk management firm to provide greater independence and depth to the function.  The Bank’s internal auditors meet regularly with the Audit Committee of the Board of Directors.  The Audit Committee monitors internal audit activities, the results of audits and the tracking of action plans for corrective actions of findings.

7. Implement and adhere to a written program for the maintenance of an adequate Allowance for Loan Losses.

The Bank has developed and implemented a written program for the maintenance of an adequate Allowance for Loan Losses.  The Bank has devoted substantial management resources to this area. An Allowance for Loan Losses Committee has been established that meets quarterly to discuss and review the Bank’s computed Allowance for Loan Losses, which is then presented to the Board of Directors.  Technology solutions have been implemented to provide more robust measuring and reporting tools.  The program developed is consistent with OCC guidelines and current U.S. GAAP standards and incorporates all elements required by the Agreement.

8. Develop, implement and thereafter ensure adherence to a written program to ensure compliance with the appraisal and evaluation requirements for loans and OREO.

28

The Bank has developed and implemented a written program to ensure compliance with the appraisal and evaluation requirements for loans and OREO.

9. Develop, implement and thereafter ensure adherence to a written program to improve credit risk management processes and practices to reduce the high level of credit risk in the Bank.

The Bank has developed and implemented a written program to improve its credit risk management process and practices to reduce the high level of credit risk in the Bank.  The program is consistent with OCC guidelines and incorporates all elements required by the Agreement.  Steps taken by the Bank include:

- Reorganized the credit department to ensure appropriate separation of duties and developed expanded training for lenders.

- Hired a senior credit officer to run a newly created separate loan review and workout department.

- Changed the Bank’s credit policy to require identification of concentrations of risk, analysis of our customer’s global cash flows, reappraisal and re-evaluation of collateral, more accurate and timely credit-risk rating procedures and improved underwriting processes and standards.

- Incorporated the results of a systematic re-appraisal of commercial real estate which secures loans in excess of $1 million.

- Engaged qualified outside consultants to assist in re-evaluating risk ratings.

- Improved the processes for identifying loans and the determination of the amount of impairment.

- Augmented the Bank’s credit policy to govern loan workout.

- Implemented a new procedure to ensure that OREO was accounted for in accordance with U.S. GAAP.

- Adopted additional management reports to enhance monitoring.

10. Adopt, implement and thereafter ensure adherence to a written asset diversification program.

The Bank has adopted and implemented a written asset diversification program which is reviewed quarterly by management and the Board of Directors.

11. Develop, implement and thereafter ensure adherence to a written program of policies and procedures, staffing and training to provide for compliance with the Bank Secrecy Act.

The Bank has developed and implemented a written program of policies and procedures, staffing and training to provide for compliance with the Bank Secrecy Act.

12. Review and revise the contingency funding plan.

The Bank has reviewed and revised its contingency funding plan.

13. Adopt, implement and thereafter ensure adequate management reports that enable the Board and management to monitor the Bank’s liquidity position on a monthly basis.

The Bank has adopted and implemented adequate management reports that enable the Board of Directors and management to monitor the Bank’s liquidity position on a monthly basis.

14. Develop, implement and thereafter ensure adherence to a comprehensive, written information security program to ensure the safety and soundness of its operations to support the Bank’s efforts to safeguard customer information.

The Bank has developed and implemented a comprehensive, written information security program to ensure the safety and soundness of its operations to support the Bank’s efforts to safeguard customer information.

Management and the Board of Directors are committed to taking all necessary actions to promptly address the requirements of the Agreement, and believe that the Bank has made significant progress in addressing these requirements.

Financial Performance of the Company - As of March 31, 2013, the Company, on a consolidated basis, had total assets of $1.6 billion, total deposits of $1.4 billion and stockholders’ equity of $166 million. The Company recorded net income of $2.7 million, or $0.23 per diluted common share, for the first quarter of 2013, compared to net income of $1.2 million, or $0.12 per diluted common share, for the first quarter of 2012. The improvement in first quarter 2013 earnings versus the comparable 2012 period resulted from a $1.1 million increase in non-interest income, an $804 thousand reduction in total operating expenses and a lower effective tax rate in 2013. The higher level of non-interest income resulted principally from improvements in net gain on the sale of portfolio loans, net gain on the sale of securities available for sale and net gain on the sale of mortgage loans originated for sale during the first quarter of 2013. The reduction in operating expenses versus 2012 was due to lower pension costs in 2013 resulting from a freezing of the Company’s defined benefit plan at year-end 2012, lower accounting and auditing fees and reductions in consulting and professional services, marketing and telecom expenses. Partially offsetting these positive factors was a $532 thousand (3.7%) reduction in net interest income resulting from a 32 basis point narrowing of the net interest margin to 3.95% in 2013.

29

The Company’s return on average assets and return on average common stockholders’ equity were 0.69% and 6.69%, respectively, for the first quarter of 2013 and 0.31% and 3.43%, respectively, for the first quarter of 2012. The Company’s net interest margin decreased by 32 basis points to 3.95% for the first quarter of 2013 from 4.27% for the first quarter of 2012. The decrease in the net interest margin was due to the continued low level of interest rates and a shift in the Company’s balance sheet mix from loans into lower-yielding overnight interest-bearing deposits due principally to loan workout activity. Generally, the Company’s net interest margin is impacted not only by the average balance and mix of the Company’s interest-earning assets and interest-bearing liabilities, but also by the level of market interest rates. These rates are significantly influenced by the actions of the Federal Open Market Committee of the Board of Governors of the Federal Reserve System (the “FOMC”) policy makers.

Financial Performance Summary

As of or for the quarters ended March 31, 2013 and 2012

(dollars in thousands, except per share data)

	Quarters ended March 31,
							Over/
							(under)
	2013			2012			2012
Revenue (1)	$	16,993		$	16,463			3.2	%
Operating expenses	$	13,801		$	14,605			(5.5	%)
Provision for loan losses	$	-		$	-			-
Net income	$	2,709		$	1,168			131.9	%
Net income per common share - diluted	$	0.23		$	0.12			95.2	%
Return on average assets		0.69	%		0.31	%		38	bp
Return on average stockholders' equity		6.69	%		3.43	%		326	bp
Tier 1 leverage ratio		9.83	%		8.76	%		107	bp
Tier 1 risk-based capital ratio		16.37	%		13.14	%		323	bp
Total risk-based capital ratio		17.63	%		14.42	%		321	bp
Tangible common equity ratio (non-GAAP)		10.23	%		9.02	%		121	bp

bp - denotes basis points; 100 bp equals 1%.

(1) Represents net interest income plus total non-interest income.

The Company’s core deposit franchise continues to be among the best in the region. Core deposits, consisting of demand, N.O.W., saving and money market deposits, totaled $1.2 billion at March 31, 2013 and represented 82% of total deposits at that date. Demand deposits alone totaled $558 million at March 31, 2013 and represented 40% of total deposits at that date. The deposit product mix continues to be a primary strength of the Company and resulted in a total cost of funds of approximately 22 basis points during the first quarter of 2013.

The Company experienced quarter over quarter growth in our total loan portfolio of $43 million, from $781 million at December 31, 2012 to $824 million at March 31, 2013, a 5.6% quarterly growth rate. With the sales of $85 million in non-performing and other criticized and classified loans and $25 million capital raise in 2012 and now behind us, the Company has strengthened its overall financial position. The management team worked hard to put the people, systems and processes in place to position the Company for growth. As we continue to diversify our lending focus into a more balanced mix of products and expand west from the eastern end of Long Island, we believe there are many opportunities for us in attractive markets. By gradually redeploying our current cash position into higher-yielding, high quality loans and other interest-earning assets, and focusing our efforts on expense reductions going forward, management of the Company believes we can achieve improved financial results in future periods.

Critical Accounting Policies, Judgments and Estimates - The Company’s accounting and reporting policies conform to U.S. GAAP and general practices within the financial services industry. The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.

30

Allowance forLoan Losses  -  In  management’s opinion, one  of  the  most  critical  accounting policies impacting the Company’s financial statements is the evaluation of the allowance for loan losses. The allowance for loan losses is a valuation allowance for probable incurred losses, increased by the provision for loan losses and recoveries, and decreased by loan charge-offs. For all classes of loans, when a loan, in full or in part, is deemed uncollectible, it is charged against the allowance for loan losses. This happens when the loan is past due and the borrower has not shown the ability or intent to make the loan current, or the borrower does not have sufficient assets to pay the debt, or the value of the collateral is less than the balance of the loan and is not considered likely to improve soon. The allowance for loan losses is determined by a continuous analysis of the loan portfolio. Such analysis includes changes in the size and composition of the portfolio, the Company’s own historical loan losses, industry-wide losses, current and anticipated economic trends, and details about individual loans. It also includes estimates of the actual value of collateral, other possible sources of repayment and estimates that are susceptible to significant changes due to changes in appraisal values of collateral, national and regional economic conditions and other relevant factors. All non-accrual loans over $250 thousand in the commercial and industrial, commercial real estate and real estate construction loan classes and all TDRs are evaluated individually for impairment. Management will use judgment to determine if there are other loans outside of these two categories that fit the definition of impaired. All other loans are generally evaluated as homogeneous pools with similar risk characteristics.  In assessing the adequacy of the allowance for loan losses, management reviews the loan portfolio by separate classes that have similar risk and collateral characteristics; e.g., commercial and industrial, commercial real estate, real estate construction, residential mortgages (1st and 2nd liens), home equity and consumer loans.

The allowance for loan losses consists of specific and general components. The specific component relates to loans that are individually classified as impaired. Specific reserves are established based on an analysis of the most probable sources of repayment and liquidation of collateral. Impaired loans that are collateral dependent are reviewed based on their collateral and the estimated time required to recover the Company’s investment in the loans, as well as the cost of doing so, and the estimate of the recovery. Non-collateral dependent impaired loans are reviewed based on the present value of estimated future cash flows, including balloon payments, if any, using the loan’s effective interest rate. While every non-performing loan is evaluated individually, not every loan requires a specific reserve. Specific reserves fluctuate based on changes in the underlying loans, anticipated sources of repayment, and charge-offs. The general component covers non-impaired loans and is based on historical loss experience for each loan class from a rolling twelve quarter period and modifying those percentages, if necessary, after adjusting for current qualitative and environmental factors that reflect changes in the collectability of the loan class not captured by historical loss data.  These factors augment actual loss experience and help estimate the probability of loss within the loan portfolio based on emerging or inherent risk trends. These qualitative factors are applied as an adjustment to historical loss rates and require judgments that cannot be subjected to exact mathematical calculation. There are no formulas for translating them into a specific basis point adjustment of the Company’s historical loss rate for a pool of loans having similar risk characteristics. These adjustments reflect management’s overall estimate of the extent to which current losses on a pool of loans will differ from historical loss experience. These adjustments are subjective estimates and management reviews them on a quarterly basis. TDRs are also considered impaired with impairment generally measured at the present value of estimated future cash flows using the loan’s effective interest rate at inception or using the fair value of collateral, less estimated costs to sell, if repayment is expected solely from the collateral.

DeferredTaxAssetsandLiabilities – Deferred tax assets and liabilities are the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities, computed using enacted tax rates. Deferred tax assets are recognized if it is more likely than not that a future benefit will be realized. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.  The realization of deferred tax assets (net of a recorded valuation allowance) is largely dependent upon future taxable income, future reversals of existing taxable temporary differences and the ability to carryback losses to available tax years. In assessing the need for a valuation allowance, the Company considers all relevant positive and negative evidence, including taxable income in carryback years, scheduled reversals of deferred tax liabilities, expected future taxable income and available tax planning strategies.

OTTIofInvestment Securities – Management evaluates securities for OTTI on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the statement of operations and 2) OTTI related to other factors, which is recognized in other comprehensive income (loss). The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

Material Changes in Financial Condition - Total assets of the Company were $1.6 billion at March 31, 2013. When compared to December 31, 2012, total assets decreased by $29 million. This change primarily reflects a decline in cash and cash equivalents of $82 million, partially offset by increases in loans and investment securities of $43 million and $11 million, respectively. These movements largely reflect the redeployment of lower-yielding overnight interest-bearing deposits into loans and, secondarily, into investment securities. Total loans were $824 million at March 31, 2013 as compared to $781 million at December 31, 2012. Total investment securities increased to $421 million at March 31, 2013 from $410 million at December 31, 2012.

31

The increase in the loan portfolio largely reflects growth of multifamily and commercial and industrial loans of $26 million and $19 million, respectively, during the first quarter of 2013. The increase in the investment portfolio largely reflects purchases of mortgage-backed securities of U.S. Government-sponsored enterprises and U.S. Government agency securities of $25 million and $15 million, respectively, during the first quarter of 2013. These were partially offset by sales and prepayments of CMOs totaling $26 million during the same 2013 period.

At March 31, 2013, total deposits were $1.4 billion, a decrease of $27 million when compared to December 31, 2012. This decrease was primarily due to lower demand deposit balances of $57 million, partially offset by growth in saving, N.O.W. and money market deposits of $24 million. Although core deposit balances, which consist of demand, saving, N.O.W. and money market deposits, decreased $33 million during the first quarter of 2013, such balances represented 82% of total deposits at March 31, 2013 as compared to 83% at December 31, 2012. Demand deposit balances decreased during the first quarter of 2013, but represented 40% of total deposits at March 31, 2013 versus 43% at December 31, 2012. The Company had no borrowed funds outstanding at either March 31, 2013 or December 31, 2012.

Liquidity and Capital Resources - Liquidity management is defined as both the Company’s and the Bank’s ability to meet their financial obligations on a continuous basis without material loss or disruption of normal operations. These obligations include the withdrawal of deposits on demand or at their contractual maturity, the repayment of borrowings as they mature, funding new and existing loan commitments and the ability to take advantage of business opportunities as they arise. Asset liquidity is provided by short-term investments and the marketability of securities available for sale. The Company may also leave excess reserve balances at the Federal Reserve Bank (“FRB”) if the rate being paid is higher than would be available from other short-term investments. Liquid assets, consisting of federal funds sold, securities available for sale and balances at the FRB, were $680 million at March 31, 2013 compared to $706 million at December 31, 2012. These liquid assets may include assets that have been pledged against municipal deposits or other short-term borrowings. Liquidity is also provided by the maintenance of a base of core deposits, maturing short-term assets including cash and due from banks, the ability to sell or pledge marketable assets and access to lines of credit.

Liquidity is continuously monitored, thereby allowing management to better understand and react to emerging balance sheet trends, including temporary mismatches with regard to sources and uses of funds. After assessing actual and projected cash flow needs, management seeks to obtain funding at the most economical cost. These funds can be obtained by converting liquid assets to cash or by attracting new deposits or other sources of funding. Many factors affect the Company’s ability to meet liquidity needs, including variations in the markets served, loan demand, its asset/liability mix, its reputation and credit standing in its markets and general economic conditions. Borrowings and the scheduled amortization of investment securities and loans are more predictable funding sources. Deposit flows and securities prepayments are somewhat less predictable as they are often subject to external factors. Among these are changes in the local and national economies, competition from other financial institutions and changes in market interest rates.

The Company’s primary sources of funds are cash provided by deposits and borrowings, proceeds from maturities and sales of securities available for sale, and cash provided by operating activities. At March 31, 2013, total deposits were $1.4 billion, a decrease of $27 million when compared to December 31, 2012. Of the total time deposits at March 31, 2013, $207 million are scheduled to mature within the next 12 months. At March 31, 2013 and December 31, 2012, there were no borrowings outstanding. Based on historical experience, the Company expects to be able to replace a substantial portion of those maturing deposits. For the three months ended March 31, 2013 and 2012, proceeds from sales and maturities of securities available for sale totaled $17 million and $30 million, respectively.

The Company’s primary uses of funds are for the origination of loans and the purchase of investment securities. For the three months ended March 31, 2013, the Company had net loan originations for portfolio of $48 million compared to net loan repayments of $30 million for the same period in 2012. The Company purchased investment securities totaling $49 million and $30 million during the three months ended March 31, 2013 and 2012, respectively.

The Company strives to maintain an efficient level of capital, commensurate with its risk profile, on which a competitive rate of return to stockholders will be realized over both the short and long term. Capital is managed to enhance stockholder value while providing flexibility for management to act opportunistically in a changing marketplace. Management continually evaluates the Company’s capital position in light of current and future growth objectives and regulatory guidelines. Total stockholders’ equity amounted to $166 million at March 31, 2013 and $164 million at December 31, 2012, the increase reflecting the Company’s net income for the first quarter of 2013.

32

The Company’s tangible common equity ratio was 10.23% at March 31, 2013 compared to 9.96% at December 31, 2012 and 9.02% at March 31, 2012. The ratio of tangible common equity to tangible assets, or TCE ratio, is calculated by dividing total common stockholders’ equity by total assets, after reducing both amounts by intangible assets. The TCE ratio is not required by GAAP or by applicable bank regulatory requirements, but is a metric used by management to evaluate the adequacy of our capital levels. Since there is no authoritative requirement to calculate the TCE ratio, our TCE ratio is not necessarily comparable to similar capital measures disclosed or used by other companies in the financial services industry. Tangible common equity and tangible assets are non-GAAP financial measures and should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP or as required by bank regulatory agencies. Set forth below are the reconciliations of tangible common equity to GAAP total common stockholders’ equity and tangible assets to GAAP total assets at March 31, 2013 (in thousands):

Total stockholders' equity	$	165,556
Less: intangible assets		(2,853	)
Tangible common equity	$	162,703
Total assets	$	1,593,926
Less: intangible assets		(2,853	)
Tangible assets	$	1,591,073

The Company’s Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios were 9.83%, 16.37% and 17.63%, respectively, at March 31, 2013. The Company’s capital ratios exceeded all regulatory requirements at March 31, 2013.

The Bank’s Tier I leverage, Tier I risk-based and total risk-based capital ratios were 9.77%, 16.28% and 17.53%, respectively, at March 31, 2013. Each of these ratios exceeds the regulatory guidelines for a “well capitalized” institution, the highest regulatory capital category. Each of these ratios also exceeds the IMCRs established by the OCC requiring the Bank to maintain Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios of at least 8.00%, 10.50% and 12.00%, respectively.

The Company did not repurchase any shares of its common stock during the first quarter of 2013 under the existing stock repurchase plan. Repurchase of shares will occur only if management believes that the purchase will be at prices that are accretive to earnings per share and is the most efficient use of the Company’s capital.

Off-Balance Sheet Arrangements - The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby and documentary letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated financial statements. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the customer. Collateral required varies, but may include accounts receivable, inventory, equipment, real estate and income-producing commercial properties. At March 31, 2013 and December 31, 2012, commitments to originate loans and commitments under unused lines of credit for which the Bank is obligated amounted to approximately $142 million and $140 million, respectively.

Letters of credit are conditional commitments guaranteeing payments of drafts in accordance with the terms of the letter of credit agreements. Commercial letters of credit are used primarily to facilitate trade or commerce and are also issued to support public and private borrowing arrangements, bond financing and similar transactions. Collateral may be required to support letters of credit based upon management’s evaluation of the creditworthiness of each customer. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Most letters of credit expire within one year. At both March 31, 2013 and December 31, 2012, letters of credit outstanding were approximately $19 million.

The Company has a liability of $255 thousand for unfunded commitments at March 31, 2013.

Material Changes in Results of Operations – Comparison of the Quarters Ended March 31, 2013 and 2012 - The Company recorded net income of $2.7 million during the first quarter of 2013 versus net income of $1.2 million in the comparable 2012 period. The improvement in net income primarily reflects a $1.1 million increase in non-interest income, an $804 thousand reduction in total operating expenses and a lower effective tax rate, partially offset by a decrease in net interest income of $532 thousand during the first quarter of 2013.

33

As shown in the net interest income analysis table below for the three months ended March 31, 2013 and 2012, net interest income decreased $532 thousand resulting from a 32 basis point reduction in the Company’s net interest margin to 3.95% in the first quarter of 2013 versus the first quarter of 2012, offset in part by an $83 million increase in average total interest-earning assets. The decrease in the net interest margin was due to the continued low level of interest rates coupled with a shift in the Company’s balance sheet mix from loans (average loans down 17.1% versus first quarter 2012) into lower-yielding overnight interest-bearing deposits and fed funds sold which represented 20% of average total interest-earning assets in the first quarter of 2013 versus 10% in the first quarter of 2012.

NET INTEREST INCOME ANALYSIS

For the Three Months Ended March 31, 2013 and 2012

(unaudited, dollars in thousands)

	2013								2012
	Average					Average			Average					Average
	Balance		Interest			Yield/Cost			Balance		Interest			Yield/Cost
Assets:
Interest-earning assets:
Investment securities (1)	$	413,591	$	4,048			3.97	%	$	319,327	$	3,521			4.43	%
Federal Reserve Bank,  Federal Home Loan Bank and other stock		3,044		39			5.20			2,536		46			7.30
Federal funds sold and interest-bearing deposits		292,042		173			0.24			141,560		77			0.22
Loans		788,788		11,082			5.70			951,003		12,394			5.24
Total interest-earning assets		1,497,465	$	15,342			4.16	%		1,414,426	$	16,038			4.56	%
Non-interest-earning assets		102,689								79,191
Total Assets	$	1,600,154							$	1,493,617
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Saving, N.O.W. & money market deposits	$	600,712	$	286			0.19	%	$	539,614	$	317			0.24	%
Time deposits		246,146		482			0.79			261,253		719			1.11
Total saving and time deposits		846,858		768			0.37			800,867		1,036			0.52
Borrowings		23		-			-			-		-			-
Total interest-bearing liabilities		846,881		768			0.37			800,867		1,036			0.52
Demand deposits		562,281								513,008
Other liabilities		26,682								42,929
Total Liabilities		1,435,844								1,356,804
Stockholders' Equity		164,310								136,813
Total Liabilities and Stockholders' Equity	$	1,600,154							$	1,493,617
Net interest rate spread							3.79	%							4.04	%
Net interest income/margin				14,574			3.95	%				15,002			4.27	%
Less tax-equivalent basis adjustment				(898	)							(794	)
Net interest income			$	13,676							$	14,208

(1) Interest on securities includes the effects of tax-equivalent basis adjustments of $898 and $794 in 2013 and 2012, respectively.

The Company’s first quarter 2013 average total interest-earning asset yield was 4.16%, down 40 basis points from the comparable 2012 period principally due to a 46 basis point reduction in the average yield on the Company’s investment securities portfolio to 3.97% in the first quarter of 2013 from 4.43% in the first quarter of 2012. This is largely a result of principal paydowns and sales of mortgage-backed securities and CMOs of U.S. Government-sponsored enterprises, as these securities had higher yields than those of the securities subsequently purchased. The lower yields reflect the lower rate environment that has been prevalent. The average balance of the Company’s securities portfolio increased $94 million for the first quarter of 2013 as compared to the same period in 2012. This was primarily due to purchases of mortgage-backed securities of U.S. Government-sponsored enterprises and U.S. Government agency securities.

34

The Company’s average cost of total interest-bearing liabilities declined by 15 basis points to 0.37% in the first quarter of 2013 versus 0.52% in the first quarter of 2012. The Company’s lower funding cost resulted largely from average core deposits of $1.2 billion in the first quarter of 2013, with average demand deposits representing 40% of average total deposits. The average cost of time deposits declined 32 basis points in the first quarter of 2013 compared to the same period in 2012. The Company also experienced a $15 million decrease in the average balance of time deposits for the first quarter of 2013 versus the same period in 2012.

The Company recorded no consolidated provision for loan losses for the three months ended March 31, 2013 and 2012. The adequacy of the provision and the resulting allowance for loan losses, which was $18 million at both March 31, 2013 and December 31, 2012, is determined by management’s ongoing review of the loan portfolio, including identification and review of individual problem situations that may affect a borrower’s ability to repay, delinquency and non-performing loan data including the current status of criticized and classified loans, collateral values and changes in the size and mix of the loan portfolio. (See also Critical Accounting Policies, Judgments and Estimates and Asset Quality contained herein.)

Non-Interest Income

For the quarters ended March 31, 2013 and 2012

(dollars in thousands)

	Quarters ended March 31,
					Over/
					(under)
	2013		2012		2012
Service charges on deposit accounts	$	924	$	950		(2.7	)	%
Other service charges, commissions & fees		710		750		(5.3	)
Fiduciary fees		273		201		35.8
Net gain on sale of securities available for sale		359		-		N/M		(1)
Net gain on sale of portfolio loans		442		-		N/M		(1)
Net gain on sale of mortgage loans originated for sale		526		197		167.0
Other operating income		83		157		(47.1	)
Total non-interest income	$	3,317	$	2,255		47.1		%

(1) N/M - denotes % variance not meaningful for statistical purposes.

Non-interest income grew by $1.1 million or 47.1% for the three months ended March 31, 2013 versus 2012 due to a combination of increases in gain on the sale of portfolio loans of $442 thousand, gain on the sale of securities available for sale of $359 thousand and gain on the sale of mortgage loans originated for sale of $329 thousand in the first quarter of 2013. The net gain on the sale of portfolio loans related to loans previously written down and transferred to held-for-sale during the second quarter of 2012. The gain on the sale of investment securities resulted from a strategic repositioning of a portion of the Company’s portfolio to take advantage of market conditions present in 2013. The growth in income associated with the sale of mortgage loans originated for sale is due to the Company’s commitment to this business which has resulted in significant growth in monthly originations sourced through a dedicated sales staff and branch referral network.

Total operating expenses declined by $804 thousand or 5.5% for the first quarter of 2013 versus 2012 as the result of reductions in pension costs (down $824 thousand), accounting and audit fees (down $563 thousand), consulting and professional services expenses (down $327 thousand) and other operating expenses largely due to lower marketing and telecom expenses. These were partially offset by increases in FDIC assessments expense, occupancy and equipment expenses and data processing costs of $447 thousand, $150 thousand and $98 thousand, respectively.

The lower pension costs in the first quarter of 2013 resulted from a freezing of the Company’s defined benefit plan at December 31, 2012. The decrease in accounting and audit fees in the first quarter of 2013 versus 2012 was largely due to fees recorded in 2012 and not repeated in 2013 pertaining to the Company’s predecessor independent registered public accounting firm. While the Company made significant investments in people and systems over the last year to implement its growth plans, as a result the Company was able to realize reduced consulting and professional services expenses in the first quarter of 2013 as compared to the same 2012 period. These reductions were partially offset by increased FDIC assessments expense in the first quarter of 2013 versus 2012. As a result of the Company’s first quarter 2012 reassessment of the carrying value of its prepaid FDIC assessment asset, the cumulative expense recorded was adjusted downward accordingly in the first quarter of 2012.

35

Operating Expenses

For the quarters ended March 31, 2013 and 2012

(dollars in thousands)

	Quarters ended March 31,
					Over/
					(under)
	2013		2012		2012
Employee compensation and benefits	$	8,582	$	8,584		-	%
Occupancy expense		1,544		1,454		6.2
Equipment expense		572		512		11.7
Consulting and professional services		570		897		(36.5	)
FDIC assessments		517		70		638.6
Data processing		467		369		26.6
Accounting and audit fees		21		584		(96.4	)
Other operating expense		1,528		2,135		(28.4	)
Total operating expenses	$	13,801	$	14,605		(5.5	) %

The Company recorded income tax expense of $483 thousand in the first quarter of 2013 resulting in an effective tax rate of 15.1% versus $690 thousand and 37.1%, respectively, in the comparable period a year ago. The reduction in the Company’s effective tax rate in 2013 versus 2012 resulted from a change in the expected tax rate at which the deferred tax asset will be realized in future periods.

Asset Quality - Non-accrual loans, excluding loans categorized as held-for-sale, totaled $14 million or 1.75% of total loans outstanding at March 31, 2013 versus $16 million or 2.10% of loans outstanding at December 31, 2012 and $83 million or 8.85% of loans outstanding at March 31, 2012. The decrease in non-accrual loans at March 31, 2013 compared to March 31, 2012 resulted primarily from the sales in 2012 of non-performing and other criticized and classified loans as part of management’s strategy to resolve legacy credit issues. The allowance for loan losses as a percentage of total non-accrual loans amounted to 124% at March 31, 2013 versus 108% at December 31, 2012 and 48% at March 31, 2012.

The Company held no loans 90 days or more past due and still accruing at any of the reported dates. Total loans 30 - 89 days past due and accruing amounted to $7 million or 0.80% of loans outstanding at March 31, 2013 versus $14 million or 1.81% of loans outstanding as of December 31, 2012 and $22 million or 2.35% of loans outstanding at March 31, 2012. The Company held OREO of $372 thousand, $1.6 million and $1.8 million at March 31, 2013, December 31, 2012 and March 31, 2012, respectively. The Company sold one OREO property at its carrying value of $1.2 million in the first quarter of 2013.

36

Total criticized and classified loans were $85 million at March 31, 2013, $99 million at December 31, 2012 and $246 million at March 31, 2012. Criticized loans are those loans that are not classified but require some degree of heightened monitoring. Classified loans were $54 million at March 31, 2013, $54 million at December 31, 2012 and $177 million at March 31, 2012. The allowance for loan losses as a percentage of total classified loans was 33%, 33% and 23%, respectively, at the same dates. At March 31, 2013, the Company had $16 million in TDRs, primarily consisting of commercial and industrial, commercial real estate and residential mortgage loans. At March 31, 2013, $10 million of the TDRs were current and accruing and $6 million were on non-accrual status. The Company had TDRs amounting to $17 million at December 31, 2012 and $28 million at March 31, 2012.

The Company recorded net loan recoveries of $53 thousand in the first quarter of 2013 versus net loan charge-offs of $2.1 million in the fourth quarter of 2012 and $50 thousand in net loan recoveries in the first quarter of 2012. As a percentage of average total loans outstanding, these net amounts represented, on an annualized basis, (0.03)% for the first quarter of 2013, 1.12% for the fourth quarter of 2012 and (0.02)% for the first quarter of 2012.

As of March 31, 2013, the Company’s allowance for loan losses amounted to $18 million or 2.16% of period-end loans outstanding. The allowance as a percentage of loans outstanding was 2.28% at December 31, 2012 and 4.26% at March 31, 2012.

Management has determined that the current level of the allowance for loan losses is adequate in relation to the probable inherent losses present in the portfolio. Management considers many factors in this analysis, among them credit risk grades, delinquency trends, concentrations within segments of the loan portfolio, recent charge-off experience, local and national economic conditions, current real estate market conditions in geographic areas where the Company’s loans are located, changes in the trend of non-performing loans, changes in interest rates and loan portfolio growth. Changes in one or a combination of these factors may adversely affect the Company’s loan portfolio resulting in increased delinquencies, loan losses and future levels of loan loss provisions. Due to these uncertainties, management expects to record loan charge-offs in future periods. (See also Critical Accounting Policies, Judgments and Estimates contained herein.)

37

ANALYSIS OF NON-PERFORMING ASSETS

AND THE ALLOWANCE FOR LOAN LOSSES

March 31, 2013 versus December 31, 2012 and March 31, 2012

(dollars in thousands)

NON-PERFORMING ASSETS BY TYPE:

	At
	3/31/2013		12/31/2012		3/31/2012
Non-accrual Loans	$	14,420	$	16,435	$	83,152
Non-accrual Loans Held-for-Sale		-		907		-
Loans 90 Days or More Past Due and Still Accruing		-		-		-
OREO		372		1,572		1,800
Total Non-performing Assets	$	14,792	$	18,914	$	84,952
Gross Loans Outstanding	$	824,399	$	780,780	$	939,736
Total Loans Held-for-Sale	$	2,494	$	907	$	-

ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES:

	Quarter Ended
	3/31/2013			12/31/2012			3/31/2012
Beginning Balance	$	17,781		$	21,021		$	39,958
Provision (Credit)		-			(1,100	)		-
Charge-offs		(359	)		(2,526	)		(825	)
Recoveries		412			386			875
Ending Balance	$	17,834		$	17,781		$	40,008

KEY  RATIOS:

	At
	3/31/2013			12/31/2012			3/31/2012
Allowance as a % of Total Loans (1)		2.2	%		2.3	%		4.3	%
Non-accrual Loans as a % of Total Loans (1)		1.7	%		2.1	%		8.8	%
Non-performing Assets as a % of Total Loans, Loans Held-for-Sale and OREO		1.8	%		2.4	%		9.0	%
Allowance for Loan Losses as a % of Non-accrual Loans (1)		124	%		108	%		48	%
Allowance for Loan Losses as a % of Non-accrual Loans and Loans 90 days or More Past Due and Still Accruing (1)		124	%		108	%		48	%

(1) Excludes loans held-for-sale.

ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company originates and invests in interest-earning assets and solicits interest-bearing deposit accounts. The Company’s operations are subject to market risk resulting from fluctuations in interest rates to the extent that there is a difference between the amounts of interest-earning assets and interest-bearing liabilities that are prepaid, withdrawn, mature, or repriced in any given period of time. The Company’s earnings or the net value of its portfolio will change under different interest rate scenarios. The principal objective of the Company’s asset/liability management program is to maximize net interest income within an acceptable range of overall risk, including both the effect of changes in interest rates and liquidity risk. The Company’s exposure to interest-rate risk has not changed materially since December 31, 2012.

38

ITEM 4. – CONTROLS AND PROCEDURES

The Company carried out an evaluation, under the supervision and with the participation of its principal executive officer and principal financial officer, of the effectiveness of the design and operation of its disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective in timely alerting them to material information required to be included in the Company’s periodic reports filed with the SEC. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date the Company carried out its evaluation.

There were no changes to the Company’s internal control over financial reporting as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act that occurred in the first quarter of 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

ITEM 1. - LEGAL PROCEEDINGS

See the information set forth in Note 10—Legal Proceedings in the Notes to Unaudited Condensed Consolidated Financial Statements under Part I, Item I, which information is incorporated by reference in response to this item.

39

ITEM 1A. – RISK FACTORS

There are no material changes from the risks disclosed in the “Risk Factors” section of our annual report on Form 10-K for the year ended December 31, 2012, except as discussed below.

An increase in the Company’s allowance for loan losses would negatively impact capital levels and could make it difficult to maintain the capital levels directed by the OCC.

The Bank is subject to IMCRs established by the OCC requiring Tier 1 leverage capital equal to at least 8.00% of adjusted average assets, Tier 1 risk-based capital equal to at least 10.50% of risk-weighted assets and total risk-based capital equal to at least 12.00% of risk-weighted assets. The Bank met all three IMCRs at March 31, 2013: Tier 1 capital was 9.77% of adjusted average assets, Tier 1 risk-based capital was 16.28% of risk-weighted assets and total risk-based capital was 17.53% of risk-weighted assets. Further increases to the Company’s allowance for loan losses, however, would negatively impact the Bank’s capital levels and could make it difficult to maintain the capital levels directed by the OCC. If the Bank fails to maintain the minimum required capital levels, it could be subject to further regulatory enforcement actions.

The Company’s loan portfolio has a high concentration of real estate loans, and its business may be adversely affected by credit risk associated with residential and commercial real estate and a decline in property values.

At March 31, 2013, $624 million, or 76% of the Company’s total gross loan portfolio, was comprised of residential and commercial real estate and construction loans and home equity lines of credit. This type of lending is generally sensitive to regional and local economic conditions that significantly impact the ability of borrowers to meet their loan payment obligations, making loss levels difficult to predict. Although real estate prices have shown signs of improvement, a decline in real estate values may reduce the value of the real estate collateral securing these types of loans and increase the risk that the Company would incur losses if borrowers default on their loans.

ITEM 2. – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. – DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. – MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. – OTHER INFORMATION

Not applicable.

ITEM 6. – EXHIBITS

31.1	Certification of principal executive officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of principal financial officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted 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.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

40

SIGNATURES

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

SUFFOLK BANCORP

Date: May 7, 2013	/s/ Howard C. Bluver
	Howard C. Bluver
	President & Chief Executive Officer
	(principal executive officer)
Date: May 7, 2013	/s/ Brian K. Finneran
	Brian K. Finneran
	Executive Vice President & Chief Financial Officer
	(principal financial and accounting officer)

41

EXHIBIT INDEX

Exhibit Number	Description
31.1	Certification of principal executive officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of principal financial officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted 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.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO RULE 13A-14(A) OR 15D-14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Howard C. Bluver, certify that:

1.  I have reviewed this Quarterly Report on Form 10-Q of Suffolk Bancorp;

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

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

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

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

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

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

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

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

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

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

Date: May 7, 2013

/s/ Howard C. Bluver

Howard C. Bluver

President & Chief Executive Officer

(principal executive officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO RULE 13A-14(A) OR 15D-14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Brian K. Finneran, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Suffolk Bancorp;

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

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

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

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

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

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

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

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

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

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

Date: May 7, 2013

/s/ Brian K. Finneran

Brian K. Finneran

Executive Vice President & Chief Financial Officer

(principal financial and accounting 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

I, Howard C. Bluver, President & Chief Executive Officer of Suffolk Bancorp (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2013 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 7, 2013

/s/ Howard C. Bluver

Howard C. Bluver

President & Chief Executive Officer

(principal 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

I, Brian K. Finneran,  Chief Financial Officer of Suffolk Bancorp (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2013 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 7, 2013

/s/ Brian K. Finneran

Brian K. Finneran

Executive Vice President & Chief Financial Officer

(principal financial and accounting officer)

XML

LOANS, Loans Current and Past Due by Aging Categories (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Summary of current and past due loans [Abstract]
30-59 days past due	$ 5,696	$ 12,435
60-89 days past due	867	1,727
90 days and over past due	14,420	16,435
Total past due	20,983	30,597
Current	803,416	750,183
Total loans	824,399	780,780
Commercial and Industrial [Member]
Summary of current and past due loans [Abstract]
30-59 days past due	382	6,591
60-89 days past due	370	1,274
90 days and over past due	6,746	6,529
Total past due	7,498	14,394
Current	180,277	154,315
Total loans	187,775	168,709
Commercial Real Estate [Member]
Summary of current and past due loans [Abstract]
30-59 days past due	1,339	1,145
60-89 days past due	0	329
90 days and over past due	3,972	5,192
Total past due	5,311	6,666
Current	393,959	362,605
Total loans	399,270	369,271
Real Estate Construction [Member]
Summary of current and past due loans [Abstract]
30-59 days past due	0	1,382
60-89 days past due	0	0
90 days and over past due	840	1,961
Total past due	840	3,343
Current	13,235	12,126
Total loans	14,075	15,469
Residential Mortgages (1st and 2nd Liens) [Member]
Summary of current and past due loans [Abstract]
30-59 days past due	2,540	2,867
60-89 days past due	0	6
90 days and over past due	2,336	2,466
Total past due	4,876	5,339
Current	142,091	141,236
Total loans	146,967	146,575
Home Equity [Member]
Summary of current and past due loans [Abstract]
30-59 days past due	1,356	261
60-89 days past due	496	100
90 days and over past due	514	266
Total past due	2,366	627
Current	61,097	65,841
Total loans	63,463	66,468
Consumer [Member]
Summary of current and past due loans [Abstract]
30-59 days past due	79	189
60-89 days past due	1	18
90 days and over past due	12	21
Total past due	92	228
Current	12,757	14,060
Total loans	$ 12,849	$ 14,288

XML

FAIR VALUE (2) (Details) (Fair Value, Measurements, Nonrecurring [Member], USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Assets measured at fair value on a non-recurring basis [Abstract]
Impaired loans	$ 9,805	$ 9,390
OREO	372	1,572
Total	10,177	10,962
Significant Unobservable Inputs (Level 3) [Member]
Assets measured at fair value on a non-recurring basis [Abstract]
Impaired loans	9,805	9,390
OREO	372	1,572
Total	$ 10,177	$ 10,962

XML

FAIR VALUE (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013		Dec. 31, 2012
Carrying Amount [Member]
Carrying amounts and estimated fair values of financial instruments [Abstract]
Federal Reserve Bank, Federal Home Loan Bank and other stock	$ 3,043		$ 3,043
Carrying Amount [Member] | Level 1 [Member]
Carrying amounts and estimated fair values of financial instruments [Abstract]
Cash and due from banks	302,529		384,656
Carrying Amount [Member] | Level 2 [Member]
Carrying amounts and estimated fair values of financial instruments [Abstract]
Cash equivalents	1,150		1,150
Investment securities held to maturity	7,871		8,035
Investment securities available for sale	413,277		402,353
Accrued interest and loan fees receivable	5,746		4,883
Non maturity deposits	1,153,942		1,187,383
Time deposits	249,816		243,731
Accrued interest payable	235		237
Carrying Amount [Member] | Level 3 [Member]
Carrying amounts and estimated fair values of financial instruments [Abstract]
Loans held-for-Sale	2,494		907
Carrying Amount [Member] | Level 2/3 [Member]
Carrying amounts and estimated fair values of financial instruments [Abstract]
Loans, net of allowance	806,565	[1]	762,999	[1]
Estimated Fair Value [Member] | Level 1 [Member]
Carrying amounts and estimated fair values of financial instruments [Abstract]
Cash and due from banks	302,529		384,656
Estimated Fair Value [Member] | Level 2 [Member]
Carrying amounts and estimated fair values of financial instruments [Abstract]
Cash equivalents	1,150		1,150
Investment securities held to maturity	8,662		8,861
Investment securities available for sale	413,277		402,353
Accrued interest and loan fees receivable	5,746		4,883
Non maturity deposits	1,153,942		1,187,383
Time deposits	251,423		245,595
Accrued interest payable	235		237
Estimated Fair Value [Member] | Level 3 [Member]
Carrying amounts and estimated fair values of financial instruments [Abstract]
Loans held-for-Sale	2,494		907
Estimated Fair Value [Member] | Level 2/3 [Member]
Carrying amounts and estimated fair values of financial instruments [Abstract]
Loans, net of allowance	$ 826,342	[1]	$ 787,597	[1]

[1] Impaired loans are generally classified within Level 3 of the fair value hierarchy.

XML

LOANS, Loans and Allowance for Loan Losses Impairment Evaluations (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012	Dec. 31, 2011
Allowance for loan losses: [Abstract]
Ending balance: individually evaluated for impairment	$ 1,276	$ 1,024
Ending balance: collectively evaluated for impairment	16,558	16,757
Balance, End of Period	17,834	17,781	40,008	39,958
Loan balances: [Abstract]
Ending balance: individually evaluated for impairment	25,673	26,956
Ending balance: collectively evaluated for impairment	798,726	753,824
Ending balance (loan portfolio)	824,399	780,780
Commercial and Industrial [Member]
Allowance for loan losses: [Abstract]
Ending balance: individually evaluated for impairment	437	340
Ending balance: collectively evaluated for impairment	4,908	5,841
Balance, End of Period	5,345	6,181	23,793	25,047
Loan balances: [Abstract]
Ending balance: individually evaluated for impairment	10,545	10,369
Ending balance: collectively evaluated for impairment	177,230	158,340
Ending balance (loan portfolio)	187,775	168,709
Commercial Real Estate [Member]
Allowance for loan losses: [Abstract]
Ending balance: individually evaluated for impairment	0	22
Ending balance: collectively evaluated for impairment	6,570	6,127
Balance, End of Period	6,570	6,149	8,879	11,029
Loan balances: [Abstract]
Ending balance: individually evaluated for impairment	8,238	9,443
Ending balance: collectively evaluated for impairment	391,032	359,828
Ending balance (loan portfolio)	399,270	369,271
Real Estate Construction [Member]
Allowance for loan losses: [Abstract]
Ending balance: individually evaluated for impairment	0	1
Ending balance: collectively evaluated for impairment	845	140
Balance, End of Period	845	141	579	623
Loan balances: [Abstract]
Ending balance: individually evaluated for impairment	840	1,961
Ending balance: collectively evaluated for impairment	13,235	13,508
Ending balance (loan portfolio)	14,075	15,469
Residential Mortgages (1st and 2nd Liens) [Member]
Allowance for loan losses: [Abstract]
Ending balance: individually evaluated for impairment	618	575
Ending balance: collectively evaluated for impairment	1,823	1,001
Balance, End of Period	2,441	1,576	2,035	2,401
Loan balances: [Abstract]
Ending balance: individually evaluated for impairment	4,976	4,660
Ending balance: collectively evaluated for impairment	141,991	141,915
Ending balance (loan portfolio)	146,967	146,575
Home Equity [Member]
Allowance for loan losses: [Abstract]
Ending balance: individually evaluated for impairment	165	86
Ending balance: collectively evaluated for impairment	759	821
Balance, End of Period	924	907	1,255	512
Loan balances: [Abstract]
Ending balance: individually evaluated for impairment	750	502
Ending balance: collectively evaluated for impairment	62,713	65,966
Ending balance (loan portfolio)	63,463	66,468
Consumer [Member]
Allowance for loan losses: [Abstract]
Ending balance: individually evaluated for impairment	56	0
Ending balance: collectively evaluated for impairment	189	189
Balance, End of Period	245	189
Loan balances: [Abstract]
Ending balance: individually evaluated for impairment	324	21
Ending balance: collectively evaluated for impairment	12,525	14,267
Ending balance (loan portfolio)	12,849	14,288
Unallocated Financing Receivables [Member]
Allowance for loan losses: [Abstract]
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	1,464	2,638
Balance, End of Period	1,464	2,638	3,113	33
Loan balances: [Abstract]
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	0	0
Ending balance (loan portfolio)	$ 0	$ 0

XML

FAIR VALUE (Tables)

3 Months Ended

Mar. 31, 2013

FAIR VALUE [Abstract]

Carrying amounts and estimated fair values of financial instruments

The following table presents the carrying amounts and estimated fair values of the Company's financial instruments (in thousands).

	Level in	March 31, 2013				December 31, 2012
	Fair Value	Carrying		Estimated		Carrying		Estimated
	Heirarchy	Amount		Fair Value		Amount		Fair Value
Cash and due from banks	Level 1	$	302,529	$	302,529	$	384,656	$	384,656
Cash equivalents	Level 2		1,150		1,150		1,150		1,150
Federal Reserve Bank, Federal Home Loan Bank and other stock	N/A		3,043		N/A		3,043		N/A
Investment securities held to maturity	Level 2		7,871		8,662		8,035		8,861
Investment securities available for sale	Level 2		413,277		413,277		402,353		402,353
Loans held-for-sale	Level 3		2,494		2,494		907		907
Loans, net of allowance	Level 2, 3 (1)		806,565		826,342		762,999		787,597
Accrued interest and loan fees receivable	Level 2		5,746		5,746		4,883		4,883
Non-maturity deposits	Level 2		1,153,942		1,153,942		1,187,383		1,187,383
Time deposits	Level 2		249,816		251,423		243,731		245,595
Accrued interest payable	Level 2		235		235		237		237

(1) Impaired loans are generally classified within Level 3 of the fair value hierarchy.

Valuation of financial instruments measured at fair value on recurring basis

Assets measured at fair value on a recurring basis are as follows (in thousands):

			Fair Value Measurements Using
			Significant Other		Significant
			Observable Inputs		Unobservable Inputs
Assets:	March 31, 2013		(Level 2)		(Level 3)
U.S. Government Agency securities		75,388		75,388		-
Corporate bonds		18,854		18,854		-
Collateralized mortgage obligations		66,104		66,104		-
Mortgage-backed securities		86,379		86,379		-
Obligations of states and political subdivisions		166,552		166,552		-
Loans held-for-sale		2,494		-		2,494
Mortgage servicing rights		2,039		-		2,039
Total	$	417,810	$	413,277	$	4,533

			Fair Value Measurements Using
			Significant Other		Significant
			Observable Inputs		Unobservable Inputs
Assets:	December 31, 2012		(Level 2)		(Level 3)
U.S. Treasury Securities	$	500	$	500	$	-
U.S. Government Agency securities		65,078		65,078		-
Corporate bonds		16,198		16,198		-
Collateralized mortgage obligations		89,692		89,692		-
Mortgage-backed securities		62,450		62,450		-
Obligations of states and political subdivisions		168,435		168,435		-
Loans held-for-sale		907		-		907
Mortgage servicing rights		1,856		-		1,856
Total	$	405,116	$	402,353	$	2,763

Assets measured at fair value on a non-recurring basis

Assets measured at fair value on a non-recurring basis are as follows (in thousands):

			Fair Value Measurements Using
			Significant
			Unobservable
			Inputs
Assets:	March 31, 2013		(Level 3)
Impaired loans	$	9,805	$	9,805
OREO		372		372
Total	$	10,177	$	10,177

			Fair Value Measurements Using
			Significant
			Unobservable
			Inputs
Assets:	December 31, 2012		(Level 3)
Impaired loans	$	9,390	$	9,390
OREO		1,572		1,572
Total	$	10,962	$	10,962

XML

RETIREMENT PLAN (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Net periodic defined benefit pension expense [Abstract]
Service cost	$ 0	$ 603,000
Interest cost	498,000	555,000
Expected return on plan assets	(575,000)	(527,000)
Net amortization	61,000	160,000
Net periodic benefit expense	(16,000)	791,000
Minimum required contribution for the pension plan	1,000,000
Additional minimum required contribution for the pension plan	$ 0

XML

LOANS, Summary of Impaired and Non-accrual Loans (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Summary of non-performing assets [Abstract]
Non-accrual loans	$ 14,420	$ 16,435
Non-accrual loans held-for-sale	0	907
Loans 90 days past due and still accruing	0	0
OREO	372	1,572
Total non-performing assets	14,792	18,914
TDRs accruing interest	10,247	9,954
TDRs - nonaccruing	$ 5,990	$ 6,650

XML

FAIR VALUE (1) (Details) (Fair Value, Measurements, Recurring [Member], USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Valuation of financial instruments measured at fair value on recurring basis [Abstract]
Total	$ 417,810	$ 405,116
US Treasury Securities [Member]
Valuation of financial instruments measured at fair value on recurring basis [Abstract]
Total		500
U.S. Government Agency Securities [Member]
Valuation of financial instruments measured at fair value on recurring basis [Abstract]
Total	75,388	65,078
Corporate Bonds [Member]
Valuation of financial instruments measured at fair value on recurring basis [Abstract]
Total	18,854	16,198
Collateralized Mortgage Obligations [Member]
Valuation of financial instruments measured at fair value on recurring basis [Abstract]
Total	66,104	89,692
Mortgage-backed Securities [Member]
Valuation of financial instruments measured at fair value on recurring basis [Abstract]
Total	86,379	62,450
Obligations of States and Political Subdivisions [Member]
Valuation of financial instruments measured at fair value on recurring basis [Abstract]
Total	166,552	168,435
Loans Held For Sale [Member]
Valuation of financial instruments measured at fair value on recurring basis [Abstract]
Total	2,494	907
Mortgage Servicing Rights [Member]
Valuation of financial instruments measured at fair value on recurring basis [Abstract]
Total	2,039	1,856
Significant Other Observable Inputs (Level 2) [Member]
Valuation of financial instruments measured at fair value on recurring basis [Abstract]
Total	413,277	402,353
Significant Other Observable Inputs (Level 2) [Member] | US Treasury Securities [Member]
Valuation of financial instruments measured at fair value on recurring basis [Abstract]
Total		500
Significant Other Observable Inputs (Level 2) [Member] | U.S. Government Agency Securities [Member]
Valuation of financial instruments measured at fair value on recurring basis [Abstract]
Total	75,388	65,078
Significant Other Observable Inputs (Level 2) [Member] | Corporate Bonds [Member]
Valuation of financial instruments measured at fair value on recurring basis [Abstract]
Total	18,854	16,198
Significant Other Observable Inputs (Level 2) [Member] | Collateralized Mortgage Obligations [Member]
Valuation of financial instruments measured at fair value on recurring basis [Abstract]
Total	66,104	89,692
Significant Other Observable Inputs (Level 2) [Member] | Mortgage-backed Securities [Member]
Valuation of financial instruments measured at fair value on recurring basis [Abstract]
Total	86,379	62,450
Significant Other Observable Inputs (Level 2) [Member] | Obligations of States and Political Subdivisions [Member]
Valuation of financial instruments measured at fair value on recurring basis [Abstract]
Total	166,552	168,435
Significant Other Observable Inputs (Level 2) [Member] | Loans Held For Sale [Member]
Valuation of financial instruments measured at fair value on recurring basis [Abstract]
Total	0	0
Significant Other Observable Inputs (Level 2) [Member] | Mortgage Servicing Rights [Member]
Valuation of financial instruments measured at fair value on recurring basis [Abstract]
Total	0	0
Significant Unobservable Inputs (Level 3) [Member]
Valuation of financial instruments measured at fair value on recurring basis [Abstract]
Total	4,533	2,763
Significant Unobservable Inputs (Level 3) [Member] | US Treasury Securities [Member]
Valuation of financial instruments measured at fair value on recurring basis [Abstract]
Total		0
Significant Unobservable Inputs (Level 3) [Member] | U.S. Government Agency Securities [Member]
Valuation of financial instruments measured at fair value on recurring basis [Abstract]
Total	0	0
Significant Unobservable Inputs (Level 3) [Member] | Corporate Bonds [Member]
Valuation of financial instruments measured at fair value on recurring basis [Abstract]
Total	0	0
Significant Unobservable Inputs (Level 3) [Member] | Collateralized Mortgage Obligations [Member]
Valuation of financial instruments measured at fair value on recurring basis [Abstract]
Total	0	0
Significant Unobservable Inputs (Level 3) [Member] | Mortgage-backed Securities [Member]
Valuation of financial instruments measured at fair value on recurring basis [Abstract]
Total	0	0
Significant Unobservable Inputs (Level 3) [Member] | Obligations of States and Political Subdivisions [Member]
Valuation of financial instruments measured at fair value on recurring basis [Abstract]
Total	0	0
Significant Unobservable Inputs (Level 3) [Member] | Loans Held For Sale [Member]
Valuation of financial instruments measured at fair value on recurring basis [Abstract]
Total	2,494	907
Significant Unobservable Inputs (Level 3) [Member] | Mortgage Servicing Rights [Member]
Valuation of financial instruments measured at fair value on recurring basis [Abstract]
Total	$ 2,039	$ 1,856

XML

ACCUMULATED OTHER COMPREHENSIVE INCOME (AOCI)

3 Months Ended

Mar. 31, 2013

ACCUMULATED OTHER COMPREHENSIVE INCOME ("AOCI") [Abstract]

ACCUMULATED OTHER COMPREHENSIVE INCOME ("AOCI")

2. ACCUMULATED OTHER COMPREHENSIVE INCOME ("AOCI")

The changes in the Company's AOCI by component, net of tax, for the three months ended March 31, 2013 follow (in thousands).

	Three Months Ended March 31, 2013									Three Months Ended March 31, 2012
	Unrealized Gains and Losses on Available-for-Sale Securities			Pension and Post- Retirement Plan Items			Total			Unrealized Gains and Losses on Available-for-Sale Securities			Pension and Post- Retirement Plan Items			Total
Beginning balance	$	10,553		$	(7,667	)	$	2,886		$	11,873		$	(14,943	)	$	(3,070	)
Other comprehensive loss before reclassifications		(991	)		-			(991	)		(1,573	)		(255	)		(1,828	)
Amounts reclassified from AOCI		(229	)		-			(229	)		-			-			-
Net current-period other comprehensive loss		(1,220	)		-			(1,220	)		(1,573	)		(255	)		(1,828	)
Ending balance	$	9,333		$	(7,667	)	$	1,666		$	10,300		$	(15,198	)	$	(4,898	)

The table below presents reclassifications out of AOCI for the three months ended March 31, 2013 (in thousands).

Three Months Ended March 31, 2013 Details about AOCI Components	Amount Reclassified from AOCI			Affected Line Item in the Statement Where Net Income is Presented
Unrealized Gains and Losses on Available-for-Sale Securities	$	359		Net Gain on Sale of Securities Available for Sale
		(130	)	Income Tax Expense
Total reclassifications, net of tax	$	229

XML

STOCK-BASED COMPENSATION (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		12 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options vesting period	3 years		3 years	3 years
Vesting rate	1.33333		1.33333	1.33333
Number of Shares [Roll Forward]
Outstanding at beginning (in shares)	211,500
Granted (in shares)	25,000				0
Exercised (in shares)	0
Forfeited or expired (in shares)	25,333
Outstanding at ending (in shares)	211,167		211,500
Weighted Average Exercise Price [Roll Forward]
Outstanding at beginning (in dollars per share)	$ 15.41
Granted (in dollars per share)	$ 14.26
Exercised (in dollars per share)	$ 0
Forfeited or expired (in dollars per share)	$ 15.50
Outstanding at ending (in dollars per share)	$ 15.26		$ 15.41
Information regarding options granted in current year [Abstract]
Risk-free interest rate (in hundredths)	0.81%
Expected dividend yield (in hundredths)	0.00%
Expected life in years	10 years
Expected volatility (in hundredths)	43.11%
Summary of options outstanding and exercisable [Abstract]
Weighted-Average Remaining Contractual Life	8 years 3 months 18 days
Weighted-Average Remaining Contractual Life	6 years 1 month 6 days
Total Shares Outstanding (in shares)	211,167		211,500
Total Weighted-Average Exercise Price (in dollars per share)	$ 15.26		$ 15.41
Total Shares Exercisable (in shares)	56,168
Total Weighted-Average Exercise Price (in dollars per share)	$ 23.08
Compensation expense	$ 82	$ 27
Remaining unrecognized compensation cost	$ 635
Remaining unrecognized compensation cost remaining vesting period	2 years 9 months 18 days
$10.79 - $12.44 [Member]
Summary of options outstanding and exercisable [Abstract]
From (in dollars per share)	$ 10.79
To (in dollars per share)	$ 12.44
Shares Outstanding (in shares)	100,000
Weighted-Average Remaining Contractual Life	8 years 10 months 24 days
Weighted-Average Exercise Price (in dollars per share)	$ 11.49
Shares Exercisable (in shares)	6,667
Weighted-Average Remaining Contractual Life	8 years 10 months 24 days
Weighted-Average Exercise Price (in dollars per share)	$ 12.44
$13.13 - $14.97 [Member]
Summary of options outstanding and exercisable [Abstract]
From (in dollars per share)	$ 13.13
To (in dollars per share)	$ 14.97
Shares Outstanding (in shares)	81,667
Weighted-Average Remaining Contractual Life	9 years 3 months 18 days
Weighted-Average Exercise Price (in dollars per share)	$ 13.80
Shares Exercisable (in shares)	20,001
Weighted-Average Remaining Contractual Life	9 years
Weighted-Average Exercise Price (in dollars per share)	$ 13.34
$28.30 - $31.83 [Member]
Summary of options outstanding and exercisable [Abstract]
From (in dollars per share)	$ 28.30
To (in dollars per share)	$ 31.83
Shares Outstanding (in shares)	15,000
Weighted-Average Remaining Contractual Life	4 years 1 month 6 days
Weighted-Average Exercise Price (in dollars per share)	$ 30.24
Shares Exercisable (in shares)	15,000
Weighted-Average Remaining Contractual Life	4 years 1 month 6 days
Weighted-Average Exercise Price (in dollars per share)	$ 30.24
$32.90 - $34.95 [Member]
Summary of options outstanding and exercisable [Abstract]
From (in dollars per share)	$ 32.90
To (in dollars per share)	$ 34.95
Shares Outstanding (in shares)	14,500
Weighted-Average Remaining Contractual Life	2 years 10 months 24 days
Weighted-Average Exercise Price (in dollars per share)	$ 34.01
Shares Exercisable (in shares)	14,500
Weighted-Average Remaining Contractual Life	2 years 10 months 24 days
Weighted-Average Exercise Price (in dollars per share)	$ 34.01
Stock Appreciation Rights (SARs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options granted related to SAR's (in shares)	6,000
Intrinsic value of SAR's (in dollars per share)	$ 0
Non Qualified Stock Option [Member] | Chief Executive Officer [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options vesting period				3 years
Vesting rate				1.33333
Number of Shares [Roll Forward]
Granted (in shares)				30,000
Weighted Average Exercise Price [Roll Forward]
Granted (in dollars per share)				10.79
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options vesting period	10 years
2009 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Company's common stock reserved for issuance (in shares)	500,000
Common stock granted (in shares)	175,000
1999 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Company's common stock reserved for issuance (in shares)	0
Options vesting period	1 year

XML

Investment Securities, Amortized Cost, Maturities and Approximate Fair Value (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Amortized Cost [Abstract]
Due in one year or less	$ 42,434
Due from one to five years	116,217
Due from five to ten years	209,792
Due after ten years	30,178
Total securities available for sale	398,621
Fair Value [Abstract]
Due in one year or less	43,232
Due from one to five years	123,531
Due from five to ten years	216,357
Due after ten years	30,157
Total securities available for sale	413,277	402,353
Amortized Cost [Abstract]
Due in one year or less	1,535
Due from one to five years	5,938
Due from five to ten years	398
Total securities held to maturity	7,871
Total investment securities	406,492
Fair Value [Abstract]
Due in one year or less	1,545
Due from one to five years	6,672
Due from five to ten years	445
Total securities held to maturity	8,662
Total investment securities	$ 421,939

XML

Investment Securities, Amortized Cost, Estimated Values and Gross Unrealized Gains and Losses (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Available for sale [Abstract]
Amortized Cost	$ 398,621,000	$ 385,781,000
Gross Unrealized Gains	15,221,000	16,795,000
Gross Unrealized Losses	(565,000)	(223,000)
Estimated Fair Value	413,277,000	402,353,000
Held to maturity [Abstract]
Estimated Fair Value	8,662,000	8,861,000
Total investment securities [Abstract]
Total Amortized Cost	406,492,000	393,816,000
Total Gross Unrealized Gains	16,012,000	17,621,000
Total Gross Unrealized Losses	(565,000)	(223,000)
Total Fair Value	421,939,000	411,214,000
Investment securities pledged	278,000,000	286,000,000
Obligations of States and Political Subdivisions [Member]
Held to maturity [Abstract]
Amortized Cost	7,871,000	8,035,000
Gross Unrealized Gains	791,000	826,000
Gross Unrealized Losses	0	0
Estimated Fair Value	8,662,000	8,861,000
U.S. Treasury Securities [Member]
Available for sale [Abstract]
Amortized Cost	0	500,000
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Estimated Fair Value	0	500,000
U.S. Government Agency Securities [Member]
Available for sale [Abstract]
Amortized Cost	75,533,000	65,085,000
Gross Unrealized Gains	59,000	70,000
Gross Unrealized Losses	(204,000)	(77,000)
Estimated Fair Value	75,388,000	65,078,000
Obligations of States and Political Subdivisions [Member]
Available for sale [Abstract]
Amortized Cost	153,701,000	155,121,000
Gross Unrealized Gains	12,851,000	13,314,000
Gross Unrealized Losses	0	0
Estimated Fair Value	166,552,000	168,435,000
Collateralized Mortgage Obligations [Member]
Available for sale [Abstract]
Amortized Cost	64,724,000	87,624,000
Gross Unrealized Gains	1,449,000	2,148,000
Gross Unrealized Losses	(69,000)	(80,000)
Estimated Fair Value	66,104,000	89,692,000
Mortgage-Backed Securities [Member]
Available for sale [Abstract]
Amortized Cost	86,156,000	61,750,000
Gross Unrealized Gains	500,000	766,000
Gross Unrealized Losses	(277,000)	(66,000)
Estimated Fair Value	86,379,000	62,450,000
Corporate Bonds [Member]
Available for sale [Abstract]
Amortized Cost	18,507,000	15,701,000
Gross Unrealized Gains	362,000	497,000
Gross Unrealized Losses	(15,000)	0
Estimated Fair Value	$ 18,854,000	$ 16,198,000

XML

INCOME TAXES (Details) (USD $)	3 Months Ended
	Mar. 31, 2013
INCOME TAXES [Abstract]
Unrecognized tax benefits including interest	$ 34,000
Operating Loss Carryforwards [Line Items]
Valuation reserve	558,000
Operating loss carryforwards, expiration dates	2032
Federal [Member]
Operating Loss Carryforwards [Line Items]
Net operating loss carryforwards	13,900,000
New York State [Member]
Operating Loss Carryforwards [Line Items]
Net operating loss carryforwards	$ 24,100,000

XML

Investment Securities, Securities Sales And Continuous Unrealized Loss Position Of Securities Held (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013 Security	Mar. 31, 2012	Dec. 31, 2012 Security
Proceeds from sales of securities available for sale and the associated realized securities gains and losses [Abstract]
Proceeds	$ 10,475	$ 0
Gross realized gains	359	0
Gross realized losses	0	0
Net Gain on Sale of Securities Available for Sale	359	0
Length of time individual securities for held-to-maturity and available-for-sale held in a continuous unrealized loss position [Abstract]
Number of Securities	22		12
Less than 12 months estimated fair value	85,213		50,934
Less than 12 months unrealized losses	565		223
12 months or longer estimated fair value	0		0
12 months or longer unrealized losses	0		0
Total estimated fair value	85,213		50,934
Total unrealized losses	565		223
U.S. Government Agency Securities [Member]
Length of time individual securities for held-to-maturity and available-for-sale held in a continuous unrealized loss position [Abstract]
Number of Securities	8		6
Less than 12 months estimated fair value	38,820		28,958
Less than 12 months unrealized losses	204		77
12 months or longer estimated fair value	0		0
12 months or longer unrealized losses	0		0
Total estimated fair value	38,820		28,958
Total unrealized losses	204		77
Collateralized Mortgage Obligations [Member]
Length of time individual securities for held-to-maturity and available-for-sale held in a continuous unrealized loss position [Abstract]
Number of Securities	3		2
Less than 12 months estimated fair value	10,177		7,878
Less than 12 months unrealized losses	69		80
12 months or longer estimated fair value	0		0
12 months or longer unrealized losses	0		0
Total estimated fair value	10,177		7,878
Total unrealized losses	69		80
Mortgage-Backed Securities [Member]
Length of time individual securities for held-to-maturity and available-for-sale held in a continuous unrealized loss position [Abstract]
Number of Securities	9		4
Less than 12 months estimated fair value	30,696		14,098
Less than 12 months unrealized losses	277		66
12 months or longer estimated fair value	0		0
12 months or longer unrealized losses	0		0
Total estimated fair value	30,696		14,098
Total unrealized losses	277		66
Corporate Bond Securities [Member]
Length of time individual securities for held-to-maturity and available-for-sale held in a continuous unrealized loss position [Abstract]
Number of Securities	2
Less than 12 months estimated fair value	5,520
Less than 12 months unrealized losses	15
12 months or longer estimated fair value	0
12 months or longer unrealized losses	0
Total estimated fair value	5,520
Total unrealized losses	$ 15

XML

LOANS (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012	Dec. 31, 2011
Categorizes total loans [Abstract]
Gross Loans	$ 824,399	$ 780,780
Allowance for loan losses	(17,834)	(17,781)	(40,008)	(39,958)
Net loans	806,565	762,999
Commercial and Industrial [Member]
Categorizes total loans [Abstract]
Gross Loans	187,775	168,709
Commercial Real Estate [Member]
Categorizes total loans [Abstract]
Gross Loans	399,270	369,271
Allowance for loan losses	(6,570)	(6,149)	(8,879)	(11,029)
Real Estate Construction [Member]
Categorizes total loans [Abstract]
Gross Loans	14,075	15,469
Allowance for loan losses	(845)	(141)	(579)	(623)
Residential Mortgages (1st and 2nd Liens) [Member]
Categorizes total loans [Abstract]
Gross Loans	146,967	146,575
Allowance for loan losses	(2,441)	(1,576)	(2,035)	(2,401)
Home Equity [Member]
Categorizes total loans [Abstract]
Gross Loans	63,463	66,468
Consumer [Member]
Categorizes total loans [Abstract]
Gross Loans	12,849	14,288
Allowance for loan losses	$ (245)	$ (189)

XML

FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2013

FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES [Abstract]

FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

1. FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The unaudited interim condensed consolidated financial statements include the accounts of Suffolk Bancorp (the "Company") and its wholly owned subsidiary, the Suffolk County National Bank of Riverhead and its subsidiaries (the "Bank"). The Bank formed Suffolk Greenway, Inc., a real estate investment trust, and owns 100% of an insurance agency and two corporations used to acquire foreclosed real estate. The insurance agency and the two corporations used to acquire foreclosed real estate are immaterial to the Company's operations. Suffolk Bancorp and subsidiaries are collectively referred to hereafter as the "Company." All material intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of the Company's management, the preceding unaudited interim condensed consolidated financial statements contain all adjustments, consisting of normal accruals, necessary for a fair presentation of its condensed consolidated statements of condition as of March 31, 2013 and December 31, 2012, its condensed consolidated statements of operations for the three months ended March 31, 2013 and 2012, its condensed consolidated statements of comprehensive income (loss) for the three months ended March 31, 2013 and 2012, its condensed consolidated statements of stockholders' equity for the three months ended March 31, 2013 and 2012 and its condensed consolidated statements of cash flows for the three months ended March 31, 2013 and 2012. The preceding unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X, as well as in accordance with predominant practices within the banking industry. They do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results of operations to be expected for the remainder of the year. For further information, please refer to the audited consolidated financial statements and footnotes thereto included in the Company's 2012 Annual Report on Form 10-K.

Loans and Loan Interest Income Recognition - Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned discounts, deferred loan fees and costs.  Unearned discounts on installment loans are credited to income using methods that result in a level yield. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income over the respective term of the loan without anticipating prepayments.

Interest income is accrued on the unpaid loan principal balance.  Recognition of interest income is discontinued when reasonable doubt exists as to whether principal or interest due can be collected. For all classes of loans, loans generally no longer accrue interest when over 90 days past due unless the loan is well-secured and in process of collection. When a loan is placed on non-accrual status, all interest previously accrued, but not collected, is reversed against current-year interest income. Interest received on such loans is applied against principal or interest, according to management's judgment as to the collectability of the principal, until qualifying for return to accrual status. Loans start accruing interest again when they become current as to principal and interest for at least six months, and when, in the opinion of management, the loans can be collected in full.  For all classes of loans, an impaired loan is defined as a loan for which it is probable that the lender will not collect all amounts due under the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties are considered troubled debt restructurings ("TDR") and are classified as impaired. Generally, TDRs are initially classified as non-accrual until sufficient time has passed to assess whether the restructured loan will continue to perform. For impaired, accruing loans, interest income is recognized on an accrual basis with cash offsetting the recorded accruals upon receipt. Interest received on non-accrual, impaired loans is applied against principal or interest according to management's judgment as to the collectibility of the principal.

Allowance for Loan Losses - The allowance for loan losses is a valuation allowance for probable incurred losses, increased by the provision for loan losses and recoveries, and decreased by loan charge-offs. For all classes of loans, when a loan, in full or in part, is deemed uncollectible, it is charged against the allowance for loan losses. This happens when the loan is past due and the borrower has not shown the ability or intent to make the loan current, or the borrower does not have sufficient assets to pay the debt, or the value of the collateral is less than the balance of the loan and is not considered likely to improve soon. The allowance for loan losses is determined by a continuous analysis of the loan portfolio. Such analysis includes changes in the size and composition of the portfolio, the Company's own historical loan losses, industry-wide losses, current and anticipated economic trends, and details about individual loans. It also includes estimates of the actual value of collateral, other possible sources of repayment and estimates that are susceptible to significant changes due to changes in appraisal values of collateral, national and regional economic conditions and other relevant factors. All non-accrual loans over $250 thousand in the commercial and industrial, commercial real estate and real estate construction loan classes and all TDRs are evaluated individually for impairment. Management will use judgment to determine if there are other loans outside of these two categories that fit the definition of impaired. All other loans are generally evaluated as homogeneous pools with similar risk characteristics. In assessing the adequacy of the allowance for loan losses, management reviews the loan portfolio by separate classes that have similar risk and collateral characteristics; e.g., commercial and industrial, commercial real estate, real estate construction, residential mortgages (1st and 2nd liens), home equity and consumer loans.

The allowance for loan losses consists of specific and general components. The specific component relates to loans that are individually classified as impaired. Specific reserves are established based on an analysis of the most probable sources of repayment and liquidation of collateral. Impaired loans that are collateral dependent are reviewed based on their collateral and the estimated time required to recover the Company's investment in the loans, as well as the cost of doing so, and the estimate of the recovery. Non-collateral dependent impaired loans are reviewed based on the present value of estimated future cash flows, including balloon payments, if any, using the loan's effective interest rate. While every non-performing loan is evaluated individually, not every loan requires a specific reserve. Specific reserves fluctuate based on changes in the underlying loans, anticipated sources of repayment, and charge-offs. The general component covers non-impaired loans and is based on historical loss experience for each loan class from a rolling twelve quarter period and modifying those percentages, if necessary, after adjusting for current qualitative and environmental factors that reflect changes in the collectability of the loan class not captured by historical loss data.  These factors augment actual loss experience and help estimate the probability of loss within the loan portfolio based on emerging or inherent risk trends. These qualitative factors are applied as an adjustment to historical loss rates and require judgments that cannot be subjected to exact mathematical calculation. There are no formulas for translating them into a specific basis point adjustment of the Company's historical loss rate for a pool of loans having similar risk characteristics. These adjustments reflect management's overall estimate of the extent to which current losses on a pool of loans will differ from historical loss experience. These adjustments are subjective estimates and management reviews them on a quarterly basis. TDRs are also considered impaired with impairment generally measured at the present value of estimated future cash flows using the loan's effective interest rate at inception or using the fair value of collateral, less estimated costs to sell, if repayment is expected solely from the collateral.

Loans Held-For-Sale – Loans held-for-sale are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Changes in fair value of loans held-for-sale are recognized in earnings.

Dividend Restriction - Banking regulations and the Bank's formal agreement (the "Agreement") with the Office of the Comptroller of the Currency ("OCC") require maintaining certain capital levels and impose limitations on dividends paid by the Bank to the Company and by the Company to stockholders. (See also Regulatory Matters footnote contained herein.)

Recent Accounting Guidance - In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-02, Comprehensive Income (Topic 220), "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. This standard is effective prospectively for public entities for annual and interim reporting periods beginning after December 15, 2012. Being disclosure-related only, the Company's adoption of ASU 2013-02 on January 1, 2013 did not have a material effect on the Company's results of operations or financial condition.

Reclassifications - Certain reclassifications have been made to prior period information in order to conform to the current period's presentation. Such reclassifications had no impact on the Company's results of operations or financial condition.

XML

LOANS, Analysis of Changes in the Allowances for Loan Losses (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Allowance for loan losses [Abstract]
Balance, Beginning of Period	$ 17,781,000	$ 39,958,000
Charge-offs	(359,000)	(825,000)
Recoveries	412,000	875,000
Provision for loan losses	0	0
Balance, End of Period	17,834,000	40,008,000
Number of months of performance trouble debt restructuring returns to accrual status	6 months
Threshold for non-accrual loans to be evaluated individually for impairment	250,000
Commercial and Industrial [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	6,181,000	25,047,000
Charge-offs	(348,000)	(337,000)
Recoveries	299,000	855,000
Provision for loan losses	(787,000)	(1,772,000)
Balance, End of Period	5,345,000	23,793,000
Allowance for loan and lease losses, period increase (decrease)	(787,000)
Period increase decrease in specific reserves	97,000
Increase decrease in historical loss factors (in basis points)	(0.0094)
Commercial and Industrial [Member] | Unimpaired Pass Rated Loans [Member]
Allowance for loan losses [Abstract]
Period increase decrease in balance of unimpaired pass rated loans	20,000,000
Commercial Real Estate [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	6,149,000	11,029,000
Charge-offs	0	0
Recoveries	72,000	0
Provision for loan losses	349,000	(2,150,000)
Balance, End of Period	6,570,000	8,879,000
Allowance for loan and lease losses, period increase (decrease)	349,000
Commercial Real Estate [Member] | Unimpaired Pass Rated Loans [Member]
Allowance for loan losses [Abstract]
Period increase decrease in balance of unimpaired pass rated loans	39,000,000
Real Estate Construction [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	141,000	623,000
Charge-offs	0	0
Recoveries	0	0
Provision for loan losses	704,000	(44,000)
Balance, End of Period	845,000	579,000
Allowance for loan and lease losses, period increase (decrease)	704,000
Increase decrease in historical loss factors (in basis points)	0.0568
Residential Mortgages (1st and 2nd Liens) [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	1,576,000	2,401,000
Charge-offs	0	(395,000)
Recoveries	1,000	1,000
Provision for loan losses	864,000	28,000
Balance, End of Period	2,441,000	2,035,000
Allowance for loan and lease losses, period increase (decrease)	864,000
Increase decrease in historical loss factors (in basis points)	0.0056
Home Equity [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	907,000	512,000
Charge-offs	0	(61,000)
Recoveries	1,000	0
Provision for loan losses	16,000	804,000
Balance, End of Period	924,000	1,255,000
Consumer [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	189,000	313,000
Charge-offs	(11,000)	(32,000)
Recoveries	39,000	19,000
Provision for loan losses	28,000	54,000
Balance, End of Period	245,000	354,000
Unallocated Financing Receivables [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	2,638,000	33,000
Charge-offs	0	0
Recoveries	0	0
Provision for loan losses	(1,174,000)	3,080,000
Balance, End of Period	$ 1,464,000	$ 3,113,000

XML

LOANS, Loans by Internal Assigned Grade for Credit Risk (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Credit risk profile by internally assigned grade [Abstract]
Total	$ 824,399	$ 780,780
Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	739,652	681,865
Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	30,596	44,665
Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	54,151	54,250
Commercial and Industrial [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	187,775	168,709
Commercial and Industrial [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	163,819	143,804
Commercial and Industrial [Member] | Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	4,969	5,995
Commercial and Industrial [Member] | Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	18,987	18,910
Commercial Real Estate [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	399,270	369,271
Commercial Real Estate [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	353,080	311,123
Commercial Real Estate [Member] | Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	25,627	38,670
Commercial Real Estate [Member] | Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	20,563	19,478
Real Estate Construction [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	14,075	15,469
Real Estate Construction [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	5,283	4,790
Real Estate Construction [Member] | Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	0	0
Real Estate Construction [Member] | Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	8,792	10,679
Residential Mortgages (1st and 2nd Liens) [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	146,967	146,575
Residential Mortgages (1st and 2nd Liens) [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	141,991	141,915
Residential Mortgages (1st and 2nd Liens) [Member] | Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	0	0
Residential Mortgages (1st and 2nd Liens) [Member] | Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	4,976	4,660
Home Equity [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	63,463	66,468
Home Equity [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	62,949	65,966
Home Equity [Member] | Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	0	0
Home Equity [Member] | Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	514	502
Consumer [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	12,849	14,288
Consumer [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	12,530	14,267
Consumer [Member] | Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	0	0
Consumer [Member] | Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	$ 319	$ 21

XML

CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Cash and cash equivalents
Cash and non-interest bearing deposits due from banks	$ 35,292	$ 80,436
Interest bearing deposits due from banks	267,237	304,220
Federal funds sold	1,150	1,150
Total cash and cash equivalents	303,679	385,806
Federal Reserve Bank, Federal Home Loan Bank and other stock	3,043	3,043
Investment securities:
Available for sale, at fair value	413,277	402,353
Held to maturity (fair value of $8,662 and $8,861 respectively)	7,871	8,035
Total investment securities	421,148	410,388
Loans	824,399	780,780
Allowance for loan losses	17,834	17,781
Net loans	806,565	762,999
Loans held-for-sale	2,494	907
Premises and equipment, net	27,299	27,656
Deferred taxes	11,656	11,385
Income tax receivable	5,349	5,406
Other real estate owned ("OREO")	372	1,572
Accrued interest and loan fees receivable	5,746	4,883
Goodwill and other intangibles	2,853	2,670
Other assets	3,722	5,749
TOTAL ASSETS	1,593,926	1,622,464
LIABILITIES & STOCKHOLDERS' EQUITY
Demand deposits	557,712	615,120
Saving, N.O.W. & money market deposits	596,230	572,263
Time certificates of $100,000 or more	173,918	165,731
Other time deposits	75,898	78,000
Total deposits	1,403,758	1,431,114
Unfunded pension liability	7,765	7,781
Capital leases	4,675	4,688
Accrued interest payable	235	237
Other liabilities	11,937	14,659
TOTAL LIABILITIES	1,428,370	1,458,479
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock (par value $2.50; 15,000,000 shares authorized; 13,732,085 shares issued; 11,566,347 shares outstanding at March 31, 2013 and December 31, 2012)	34,330	34,330
Surplus	42,710	42,628
Retained earnings	92,264	89,555
Treasury stock at par (2,165,738 shares at March 31, 2013 and December 31, 2012)	(5,414)	(5,414)
Accumulated other comprehensive income, net of tax	1,666	2,886
TOTAL STOCKHOLDERS' EQUITY	165,556	163,985
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY	$ 1,593,926	$ 1,622,464

XML

REGULATORY MATTERS (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Total Capital (to risk-weighted assets) [Abstract]
Actual capital ratios, Amount	$ 165,759	$ 162,458
Minimum for capital adequacy, Amount	75,625	72,020
Minimum to be "Well Capitalized" under prompt corrective action provisions, Amount	94,531	90,025
Total Capital (to risk-weighted assets) Ratios [Abstract]
Actual capital ratios, Ratio (in hundredths)	17.53%	18.05%
Minimum for capital adequacy, Ratio (in hundredths)	8.00%	8.00%
Minimum to be "Well Capitalized" under prompt corrective action provisions, Ratio (in hundredths)	10.00%	10.00%
Tier 1 Capital (to risk-weighted assets) [Abstract]
Actual capital ratios, Amount	153,865	151,121
Minimum for capital adequacy, Amount	37,812	36,010
Minimum to be "Well Capitalized" under prompt corrective action provisions, Amount	56,719	54,015
Tier 1 Capital (to risk-weighted assets) Ratio [Abstract]
Actual capital ratios, ratio (in hundredths)	16.28%	16.79%
Minimum for capital adequacy, Ratio (in hundredths)	4.00%	4.00%
Minimum to be "Well Capitalized" under prompt corrective action provisions, Ratio (in hundredths)	6.00%	6.00%
Tier 1 Capital (to average assets) [Abstract]
Actual capital ratios, Amount	153,865	151,121
Minimum for capital adequacy, Amount	62,997	62,092
Minimum to be "Well Capitalized" under prompt corrective action provisions, Amount	$ 78,746	$ 77,615
Tier 1 Capital (to average assets) Ratios [Abstract]
Actual capital ratios, ratio (in hundredths)	9.77%	9.74%
Minimum for capital adequacy, Ratio (in hundredths)	4.00%	4.00%
Minimum to be "Well Capitalized" under prompt corrective action provisions, Ratio (in hundredths)	5.00%	5.00%
Tier 1 Leverage Capital ratio (in hundredths)	9.77%	9.74%
Tier 1 Risk-based Capital Ratio (in hundredths)	16.28%	16.79%
Total Risk-based Capital Ratio (in hundredths)	17.53%	18.05%
Tier 1 Capital (to Average Assets) (in hundredths)	5.00%	5.00%
Tier 1 Capital (to Risk Weighted Assets) (in hundredths)	6.00%	6.00%
Total Capital (to Risk Weighted Assets) (in hundredths)	10.00%	10.00%
Bank [Member]
Total Capital (to risk-weighted assets) Ratios [Abstract]
Minimum to be "Well Capitalized" under prompt corrective action provisions, Ratio (in hundredths)	12.00%
Tier 1 Capital (to risk-weighted assets) Ratio [Abstract]
Minimum to be "Well Capitalized" under prompt corrective action provisions, Ratio (in hundredths)	10.50%
Tier 1 Capital (to average assets) Ratios [Abstract]
Minimum to be "Well Capitalized" under prompt corrective action provisions, Ratio (in hundredths)	8.00%
Tier 1 Capital (to Average Assets) (in hundredths)	8.00%
Tier 1 Capital (to Risk Weighted Assets) (in hundredths)	10.50%
Total Capital (to Risk Weighted Assets) (in hundredths)	12.00%
Parent Company [Member]
Total Capital (to risk-weighted assets) Ratios [Abstract]
Actual capital ratios, Ratio (in hundredths)	17.63%
Tier 1 Capital (to risk-weighted assets) Ratio [Abstract]
Actual capital ratios, ratio (in hundredths)	16.37%
Tier 1 Capital (to average assets) Ratios [Abstract]
Actual capital ratios, ratio (in hundredths)	9.83%
Tier 1 Leverage Capital ratio (in hundredths)	9.83%
Tier 1 Risk-based Capital Ratio (in hundredths)	16.37%
Total Risk-based Capital Ratio (in hundredths)	17.63%

XML

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) (USD $) In Thousands	Common Stock [Member]	Surplus [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Accumulated Other Comprehensive Income (Loss), Net of Tax [Member]	Total
Balance at Dec. 31, 2011	$ 34,330	$ 24,010	$ 91,303	$ (10,013)	$ (3,070)
Net (loss) income			1,168			1,168
Stock-based compensation		27				27
Other comprehensive loss					(1,828)	(660)
Balance at Mar. 31, 2012	34,330	24,037	92,471	(10,013)	(4,898)	135,927
Balance at Dec. 31, 2012	34,330	42,628	89,555	(5,414)	2,886	163,985
Net (loss) income			2,709			2,709
Stock-based compensation		82				82
Other comprehensive loss					(1,220)	1,489
Balance at Mar. 31, 2013	$ 34,330	$ 42,710	$ 92,264	$ (5,414)	$ 1,666	$ 165,556

XML

LOANS, Loans Modified as Troubled Debt Restructurings (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013 Loan	Mar. 31, 2012 Loan	Dec. 31, 2012 Loan
Troubled debt restructuring at end of period [Abstract]
Number of loans	73		70
Outstanding recorded investment	$ 16,237		$ 16,604
Troubled debt restructured during year [Abstract]
Number of Loans	6	9
Outstanding Recorded Balance, pre-modification	1,242	3,316
Outstanding Recorded Balance, Post modification	1,242	3,316
Defaulted Troubled Debt Restructurings [Member]
Troubled debt restructured during year [Abstract]
Number of Loans	0	2
Outstanding Recorded Balance, pre-modification	0	509
Commercial and Industrial [Member]
Troubled debt restructuring at end of period [Abstract]
Number of loans	42		41
Outstanding recorded investment	6,400		6,468
Troubled debt restructured during year [Abstract]
Number of Loans	2	9
Outstanding Recorded Balance, pre-modification	320	3,316
Outstanding Recorded Balance, Post modification	320	3,316
Commercial and Industrial [Member] | Defaulted Troubled Debt Restructurings [Member]
Troubled debt restructured during year [Abstract]
Number of Loans	0	1
Outstanding Recorded Balance, pre-modification	0	15
Commercial Real Estate [Member]
Troubled debt restructuring at end of period [Abstract]
Number of loans	8		9
Outstanding recorded investment	5,072		6,238
Residential Mortgages (1st and 2nd Liens) [Member]
Troubled debt restructuring at end of period [Abstract]
Number of loans	18		15
Outstanding recorded investment	4,441		3,587
Troubled debt restructured during year [Abstract]
Number of Loans	3	0
Outstanding Recorded Balance, pre-modification	905	0
Outstanding Recorded Balance, Post modification	905	0
Residential Mortgages (1st and 2nd Liens) [Member] | Defaulted Troubled Debt Restructurings [Member]
Troubled debt restructured during year [Abstract]
Number of Loans	0	1
Outstanding Recorded Balance, pre-modification	0	494
Consumer [Member]
Troubled debt restructuring at end of period [Abstract]
Number of loans	5		5
Outstanding recorded investment	324		311
Troubled debt restructured during year [Abstract]
Number of Loans	1	0
Outstanding Recorded Balance, pre-modification	17	0
Outstanding Recorded Balance, Post modification	$ 17	$ 0

XML

RETIREMENT PLAN (Tables)

3 Months Ended

Mar. 31, 2013

RETIREMENT PLAN [Abstract]

Net periodic defined benefit pension expense

The following table presents information concerning net periodic defined benefit pension expense for the three months ended March 31, 2013 and 2012 (in thousands):

	Three Months Ended
	March 31, 2013			March 31, 2012
Service cost	$	-		$	603
Interest cost		498			555
Expected return on plan assets		(575	)		(527	)
Net amortization		61			160
Net periodic benefit (income) expense	$	(16	)	$	791

XML

LOANS, Loans Modified or Renewed (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013 Loan	Mar. 31, 2012 Loan
Financing Receivable, Modifications [Line Items]
Number of loans	11	3
Outstanding recorded balance	$ 19,703	$ 3,759
Commercial and Industrial [Member]
Financing Receivable, Modifications [Line Items]
Number of loans	0	1
Outstanding recorded balance	0	580
Commercial Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Number of loans	11	2
Outstanding recorded balance	$ 19,703	$ 3,179

XML

REGULATORY MATTERS (Tables)

3 Months Ended

Mar. 31, 2013

REGULATORY MATTERS [Abstract]

The Bank's actual capital amounts and ratios

The Bank's capital amounts and ratios were as follows (dollars in thousands):

						Minimum					Minimum to be "Well
						for capital					Capitalized" under prompt
	Actual capital ratios					adequacy					corrective action provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of March 31, 2013
Total capital to risk-weighted assets	$	165,759		17.53	%	$	75,625		8.00	%	$	94,531		10.00	%
Tier 1 capital to risk-weighted assets		153,865		16.28	%		37,812		4.00	%		56,719		6.00	%
Tier 1 capital to adjusted average assets (leverage)		153,865		9.77	%		62,997		4.00	%		78,746		5.00	%
As of December 31, 2012
Total capital to risk-weighted assets	$	162,458		18.05	%	$	72,020		8.00	%	$	90,025		10.00	%
Tier 1 capital to risk-weighted assets		151,121		16.79	%		36,010		4.00	%		54,015		6.00	%
Tier 1 capital to adjusted average assets (leverage)		151,121		9.74	%		62,092		4.00	%		77,615		5.00	%

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) [Abstract]
NET INCOME	$ 2,709	$ 1,168
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation and Amortization	684	648
Stock-Based Compensation	82	27
Net Amortization of Premiums	317	504
Originations of Mortgage Loans for Sale	(20,461)	(8,195)
Proceeds from Sale of Mortgage Loans Originated for Sale	23,073	8,392
Gain on Sale of Mortgage Loans Originated for Sale	(526)	(197)
Gain on Sale of Portfolio Loans	(442)	0
(Increase) Decrease in Other Intangibles	(183)	23
Deferred Tax Expense (Benefit)	425	(11)
Decrease in Income Tax Receivable	57	700
(Increase) Decrease in Accrued Interest and Loan Fees Receivable	(863)	752
Decrease in Other Assets	2,028	206
Adjustment to Unfunded Pension Liability	(16)	791
Decrease in Accrued Interest Payable	(2)	0
Decrease in Other Liabilities	(2,722)	(1,373)
Gain on Sale of Securities Available for Sale - Net	(359)	0
Net Cash Provided by Operating Activities	3,801	3,435
CASH FLOWS FROM INVESTING ACTIVITIES
Principal Payments on Investment Securities	19,831	8,100
Proceeds from Sale of Investment Securities - Available for Sale	10,475	0
Maturities of Investment Securities - Available for Sale	6,025	30,406
Purchases of Investment Securities - Available for Sale	(49,129)	(30,000)
Maturities of Investment Securities - Held to Maturity	163	143
Purchases of Investment Securities - Held to Maturity	0	(25)
Proceeds from Sale of Portfolio Loans	1,349	0
Loan (Originations) Repayments - Net	(48,146)	29,968
Proceeds from Sale of Foreclosed Assets	1,200	0
Purchases of Premises and Equipment - Net	(327)	(518)
Net Cash (Used in) Provided by Investing Activities	(58,559)	38,074
CASH FLOWS FROM FINANCING ACTIVITIES
Net Decrease in Deposit Accounts	(27,356)	(596)
Decrease in Capital Lease Payable	(13)	(18)
Net Cash Used in Financing Activities	(27,369)	(614)
Net (Decrease) Increase in Cash and Cash Equivalents	(82,127)	40,895
Cash and Cash Equivalents Beginning of Period	385,806	172,559
Cash and Cash Equivalents End of Period	303,679	213,454
Cash Paid During the Period for:
Interest	$ 770	$ 1,249

XML

CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED) [Abstract]
Held to maturity, fair value	$ 8,662	$ 8,861
Common Stock, par value (in dollars per share)	$ 2.5	$ 2.5
Common Stock, shares authorized (in shares)	15,000,000	15,000,000
Common Stock, shares issued (in shares)	13,732,085	13,732,085
Common Stock, shares outstanding (in shares)	11,566,347	11,566,347
Treasury Stock, shares (in shares)	2,165,738	2,165,738

XML

LEGAL PROCEEDINGS

3 Months Ended

Mar. 31, 2013

LEGAL PROCEEDINGS [Abstract]

LEGAL PROCEEDINGS

10. LEGAL PROCEEDINGS

On July 11, 2011, a shareholder derivative action, Robert J. Levy v. J. Gordon Huszagh, et al., No. 11 Civ. 3321 (JS), was filed in the U.S. District Court for the Eastern District of New York against certain current and former directors of the Company and a former officer of the Company.  The Company was named as a nominal defendant.  The complaint seeks damages against the individual defendants in an unspecified amount, and alleges that the individual defendants breached their fiduciary duties by making improper statements regarding the sufficiency of the Company's allowance for loan losses and loan portfolio credit quality, and by failing to establish sufficient allowances for loan losses and to establish effective credit risk management policies.  On September 30, 2011, the Company and the current and former director defendants filed a motion to dismiss the complaint. On September 28, 2012, the court granted the motion to dismiss and granted the plaintiff leave to file an amended complaint. On April 22, 2013, the parties filed a joint status report informing the court that they had reached an agreement in principle for the joint settlement of this action and the Forbush action, described below. Management does not believe that the ultimate resolution of this matter will have a material adverse impact on the consolidated financial statements. 

On October 28, 2011, a separate shareholder derivative action, Susan Forbush v. Edgar F. Goodale, et al., No. 33538/11, was filed in the Supreme Court of the State of New York for the County of Suffolk, against certain current and former directors of the Company and a former officer of the Company. The Company was named as a nominal defendant. The complaint asserts claims that are substantially similar to those asserted in the Levy action. On February 17, 2012, the defendants filed a motion to dismiss the complaint. On February 4, 2013, the Supreme Court denied the defendants' motion to dismiss. On April 24, 3013, the plaintiff informed the court that the parties had reached an agreement in principle for the joint settlement of this action and the Levy action, described above. Management does not believe that the ultimate resolution of this matter will have a material adverse impact on the consolidated financial statements.

On October 20, 2011, a putative shareholder class action, James E. Fisher v. Suffolk Bancorp, et al., No. 11 Civ. 5114 (SJ), was filed in the U.S. District Court for the Eastern District of New York against the Company, its former chief executive officer, and a former chief financial officer of the Company.  The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by knowingly or recklessly making false statements about, or failing to disclose accurate information about, the Company's financial results and condition, loan loss reserves, impaired assets, internal and disclosure controls, and banking practices.  The complaint seeks damages in an unspecified amount on behalf of purchasers of the Company's common stock between March 12, 2010 and August 10, 2011. On October 15, 2012, the defendants filed a motion to dismiss the complaint. On April 8, 2013, the parties entered into an agreement to settle the action, subject to the approval of the court, and on April 10, 2013, the lead plaintiff filed an unopposed motion requesting the court's preliminary approval of the settlement. The motion remains pending. Management does not believe that the ultimate resolution of this matter will have a material adverse impact on the consolidated financial statements.

It is not possible at the current phases of these lawsuits to ascertain whether there is a reasonable possibility of a loss from these matters. Therefore we have concluded that an amount for a loss contingency is not to be accrued or disclosed at this time. The Company believes that it has substantial defenses to the claims filed against it in these lawsuits and, to the extent that these actions proceed, the Company intends to defend itself vigorously.

The SEC's New York regional office has formally requested certain loan files, other records and information from the Company, and the Company is in the process of providing this information. The SEC has not asserted that any federal securities law violation has occurred. The Company believes it is in compliance with all federal securities laws and is cooperating with the SEC's inquiry.

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2013	Apr. 25, 2013
Document and Entity Information [Abstract]
Entity Registrant Name	SUFFOLK BANCORP
Entity Central Index Key	0000754673
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		11,566,347
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2013

XML

FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2013

FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Loans and Loan Interest Income Recognition

Loans and Loan Interest Income Recognition - Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned discounts, deferred loan fees and costs.  Unearned discounts on installment loans are credited to income using methods that result in a level yield. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income over the respective term of the loan without anticipating prepayments.

Interest income is accrued on the unpaid loan principal balance.  Recognition of interest income is discontinued when reasonable doubt exists as to whether principal or interest due can be collected. For all classes of loans, loans generally no longer accrue interest when over 90 days past due unless the loan is well-secured and in process of collection. When a loan is placed on non-accrual status, all interest previously accrued, but not collected, is reversed against current-year interest income. Interest received on such loans is applied against principal or interest, according to management's judgment as to the collectability of the principal, until qualifying for return to accrual status. Loans start accruing interest again when they become current as to principal and interest for at least six months, and when, in the opinion of management, the loans can be collected in full.  For all classes of loans, an impaired loan is defined as a loan for which it is probable that the lender will not collect all amounts due under the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties are considered troubled debt restructurings ("TDR") and are classified as impaired. Generally, TDRs are initially classified as non-accrual until sufficient time has passed to assess whether the restructured loan will continue to perform. For impaired, accruing loans, interest income is recognized on an accrual basis with cash offsetting the recorded accruals upon receipt. Interest received on non-accrual, impaired loans is applied against principal or interest according to management's judgment as to the collectibility of the principal.

Allowance for Loan Losses

Allowance for Loan Losses - The allowance for loan losses is a valuation allowance for probable incurred losses, increased by the provision for loan losses and recoveries, and decreased by loan charge-offs. For all classes of loans, when a loan, in full or in part, is deemed uncollectible, it is charged against the allowance for loan losses. This happens when the loan is past due and the borrower has not shown the ability or intent to make the loan current, or the borrower does not have sufficient assets to pay the debt, or the value of the collateral is less than the balance of the loan and is not considered likely to improve soon. The allowance for loan losses is determined by a continuous analysis of the loan portfolio. Such analysis includes changes in the size and composition of the portfolio, the Company's own historical loan losses, industry-wide losses, current and anticipated economic trends, and details about individual loans. It also includes estimates of the actual value of collateral, other possible sources of repayment and estimates that are susceptible to significant changes due to changes in appraisal values of collateral, national and regional economic conditions and other relevant factors. All non-accrual loans over $250 thousand in the commercial and industrial, commercial real estate and real estate construction loan classes and all TDRs are evaluated individually for impairment. Management will use judgment to determine if there are other loans outside of these two categories that fit the definition of impaired. All other loans are generally evaluated as homogeneous pools with similar risk characteristics. In assessing the adequacy of the allowance for loan losses, management reviews the loan portfolio by separate classes that have similar risk and collateral characteristics; e.g., commercial and industrial, commercial real estate, real estate construction, residential mortgages (1st and 2nd liens), home equity and consumer loans.

The allowance for loan losses consists of specific and general components. The specific component relates to loans that are individually classified as impaired. Specific reserves are established based on an analysis of the most probable sources of repayment and liquidation of collateral. Impaired loans that are collateral dependent are reviewed based on their collateral and the estimated time required to recover the Company's investment in the loans, as well as the cost of doing so, and the estimate of the recovery. Non-collateral dependent impaired loans are reviewed based on the present value of estimated future cash flows, including balloon payments, if any, using the loan's effective interest rate. While every non-performing loan is evaluated individually, not every loan requires a specific reserve. Specific reserves fluctuate based on changes in the underlying loans, anticipated sources of repayment, and charge-offs. The general component covers non-impaired loans and is based on historical loss experience for each loan class from a rolling twelve quarter period and modifying those percentages, if necessary, after adjusting for current qualitative and environmental factors that reflect changes in the collectability of the loan class not captured by historical loss data.  These factors augment actual loss experience and help estimate the probability of loss within the loan portfolio based on emerging or inherent risk trends. These qualitative factors are applied as an adjustment to historical loss rates and require judgments that cannot be subjected to exact mathematical calculation. There are no formulas for translating them into a specific basis point adjustment of the Company's historical loss rate for a pool of loans having similar risk characteristics. These adjustments reflect management's overall estimate of the extent to which current losses on a pool of loans will differ from historical loss experience. These adjustments are subjective estimates and management reviews them on a quarterly basis. TDRs are also considered impaired with impairment generally measured at the present value of estimated future cash flows using the loan's effective interest rate at inception or using the fair value of collateral, less estimated costs to sell, if repayment is expected solely from the collateral.

Loans Held-For-Sale

Loans Held-For-Sale – Loans held-for-sale are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Changes in fair value of loans held-for-sale are recognized in earnings.

Dividend Restriction

Dividend Restriction - Banking regulations and the Bank's formal agreement (the "Agreement") with the Office of the Comptroller of the Currency ("OCC") require maintaining certain capital levels and impose limitations on dividends paid by the Bank to the Company and by the Company to stockholders. (See also Regulatory Matters footnote contained herein.)

Recent Accounting Guidance

Recent Accounting Guidance - In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-02, Comprehensive Income (Topic 220), "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. This standard is effective prospectively for public entities for annual and interim reporting periods beginning after December 15, 2012. Being disclosure-related only, the Company's adoption of ASU 2013-02 on January 1, 2013 did not have a material effect on the Company's results of operations or financial condition.

Reclassifications

Reclassifications - Certain reclassifications have been made to prior period information in order to conform to the current period's presentation. Such reclassifications had no impact on the Company's results of operations or financial condition.

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
INTEREST INCOME
Loans and Loan Fees	$ 11,082	$ 12,394
U.S. Government Agency Obligations	333	0
Obligations of States & Political Subdivisions	1,500	1,526
Collateralized Mortgage Obligations	835	1,194
Mortgage-Backed Securities	365	7
Corporate Bonds	117	0
Federal Funds Sold & Interest Bearing Deposits Due from Banks	173	77
Dividends	39	46
Total Interest Income	14,444	15,244
INTEREST EXPENSE
Saving, N.O.W. & Money Market Deposits	286	317
Time Certificates of $100,000 or More	300	439
Other Time Deposits	182	280
Total Interest Expense	768	1,036
Net Interest Income	13,676	14,208
Provision for Loan Losses	0	0
Net Interest Income After Provision for Loan Losses	13,676	14,208
NON-INTEREST INCOME
Service Charges on Deposit Accounts	924	950
Other Service Charges, Commissions & Fees	710	750
Fiduciary Fees	273	201
Net Gain on Sale of Securities Available for Sale	359	0
Net Gain on Sale of Portfolio Loans	442	0
Net Gain on Sale of Mortgage Loans Originated for Sale	526	197
Other Operating Income	83	157
Total Non-Interest Income	3,317	2,255
OPERATING EXPENSES
Employee Compensation and Benefits	8,582	8,584
Occupancy Expense	1,544	1,454
Equipment Expense	572	512
Consulting and Professional Services	570	897
FDIC Assessments	517	70
Data Processing	467	369
Accounting and Audit Fees	21	584
Other Operating Expenses	1,528	2,135
Total Operating Expenses	13,801	14,605
Income Before Income Tax Expense	3,192	1,858
Income Tax Expense	483	690
NET INCOME	$ 2,709	$ 1,168
EARNINGS PER COMMON SHARE - BASIC	$ 0.23	$ 0.12
EARNINGS PER COMMON SHARE - DILUTED	$ 0.23	$ 0.12
WEIGHTED AVERAGE NUMBER OF COMMON SHARES - BASIC (in shares)	11,566,347	9,726,814
WEIGHTED AVERAGE NUMBER OF COMMON SHARES - DILUTED (in shares)	11,566,347	9,726,814

XML

RETIREMENT PLAN

3 Months Ended

Mar. 31, 2013

RETIREMENT PLAN [Abstract]

RETIREMENT PLAN

5. RETIREMENT PLAN

The Company's retirement plan is noncontributory and covers substantially all eligible employees. The plan conforms to the provisions of the Employee Retirement Income Security Act of 1974, as amended, and the Pension Protection Act of 2006, which requires certain funding rules for defined benefit plans. The Company's policy is to accrue for all pension costs and to fund the maximum amount allowable for tax purposes. Actuarial gains and losses that arise from changes in assumptions concerning future events are amortized over a period that reflects the long-term nature of pension expense used in estimating pension costs.

The Company accounts for its retirement plan in accordance with ASC 715, "Compensation – Retirement Benefits" and ASC 960, "Plan Accounting – Defined Benefit Pension Plans," which require an employer that is a business entity and sponsors one or more single-employer defined benefit plans to recognize the funded status of a benefit plan in its statement of financial position; recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost; measure defined benefit plan assets and obligation as of the date of fiscal year-end statement of financial position (with limited exceptions); and disclose in the notes to financial statements additional information about certain effects of net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset and obligation. Plan assets and benefit obligations shall be measured as of the date of its statement of financial position and in determining the amount of net periodic benefit cost. The codification also requires an employer to use the same date for the measurement of plan assets as for the statement of condition.

On December 31, 2012, certain provisions of the Company's retirement plan were changed which affected all participants in this plan and froze the participation of new entrants into the pension plan for all remaining employees in 2012. These changes froze the plan such that no additional pension benefits would accumulate.

The following table presents information concerning net periodic defined benefit pension expense for the three months ended March 31, 2013 and 2012 (in thousands):

	Three Months Ended
	March 31, 2013			March 31, 2012
Service cost	$	-		$	603
Interest cost		498			555
Expected return on plan assets		(575	)		(527	)
Net amortization		61			160
Net periodic benefit (income) expense	$	(16	)	$	791

In December 2012, the Company made an annual minimum contribution of $1 million for the plan year ending September 30, 2013. There is no additional minimum required contribution for the plan year ending September 30, 2013.

XML

LOANS

3 Months Ended

Mar. 31, 2013

LOANS [Abstract]

LOANS

4. LOANS

At March 31, 2013 and December 31, 2012, net loans disaggregated by class consisted of the following (in thousands):

	March 31,			December 31,
	2013			2012
Commercial and industrial	$	187,775		$	168,709
Commercial real estate		399,270			369,271
Real estate construction		14,075			15,469
Residential mortgages (1st and 2nd liens)		146,967			146,575
Home equity		63,463			66,468
Consumer		12,849			14,288
Gross loans		824,399			780,780
Allowance for loan losses		(17,834	)		(17,781	)
Net loans at end of period	$	806,565		$	762,999

For the three months ended March 31, 2013 and 2012, the activity in the allowance for loan losses disaggregated by class is shown below (in thousands).

	Commercial and industrial			Commercial real estate		Real estate construction		Residential mortgages (1st and 2nd liens)		Home equity		Consumer			Unallocated			Total
Three months ended March 31, 2013
Balance at beginning of period	$	6,181		$	6,149	$	141	$	1,576	$	907	$	189		$	2,638		$	17,781
Charge-offs		(348	)		-		-		-		-		(11	)		-			(359	)
Recoveries		299			72		-		1		1		39			-			412
Provision for loan losses		(787	)		349		704		864		16		28			(1,174	)		-
Balance at end of period	$	5,345		$	6,570	$	845	$	2,441	$	924	$	245		$	1,464		$	17,834

	Commercial and industrial			Commercial real estate			Real estate construction			Residential mortgages (1st and 2nd liens)			Home equity			Consumer			Unallocated		Total
Three months ended March 31, 2012
Balance at beginning of period	$	25,047		$	11,029		$	623		$	2,401		$	512		$	313		$	33	$	39,958
Charge-offs		(337	)		-			-			(395	)		(61	)		(32	)		-		(825	)
Recoveries		855			-			-			1			-			19			-		875
Provision for loan losses		(1,772	)		(2,150	)		(44	)		28			804			54			3,080		-
Balance at end of period	$	23,793		$	8,879		$	579		$	2,035		$	1,255		$	354		$	3,113	$	40,008

The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors.  Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged off. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired.

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.  Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered TDRs and classified as impaired. Generally, TDRs are initially classified as non-accrual until sufficient time has passed to assess whether the restructured loan will continue to perform. Generally, the Company returns a TDR to accrual status upon six months of performance under the new terms.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Management has determined that all TDRs and all non-accrual loans are impaired; however, non-accrual loans with an impaired balance of $250 thousand or less will be evaluated under ASC 450 with other groups of smaller or homogeneous loans with similar risk characteristics. Management will use judgment to determine if there are other loans outside of these two categories that fit the definition of impaired. If a loan is impaired, a specific reserve is recorded so that the loan is reported, net, at the present value of estimated future cash flows including balloon payments, if any, using the loan's existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of homogeneous loans with smaller individual balances, such as consumer and residential real estate loans, are generally evaluated collectively for impairment, and accordingly, are not separately identified for impairment disclosures. TDRs are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan's effective rate at inception. If a TDR is considered to be "collateral-dependent," the loan is reported at the fair value of the collateral net of estimated costs to sell.  For TDRs that subsequently default, the Company determines the allowance amount in accordance with its accounting policy for the allowance for loan losses.

The general component of the allowance covers non-impaired loans and is based on historical loss experience, adjusted for qualitative factors.  The historical loss experience is determined by loan class, and is based on the actual loss history experienced by the Company over a rolling twelve quarter period. This actual loss experience is supplemented with other qualitative factors based on the risks present for each loan class.  These qualitative factors include consideration of the following:  levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures and practices; experience, ability, and depth of lending management and other relevant staff; local, regional and national economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The following loan classes have been identified: commercial and industrial, commercial real estate, real estate construction, residential mortgages (1st and 2nd liens), home equity and consumer. For performing loans, an estimate of adequacy is made by applying qualitative factors specific to the portfolio to the period-end balances. Consideration is also given to the type and collateral of the loans with particular attention paid to commercial real estate construction loans, due to the inherent risk of this type of loan. Specific and general reserves are available for any identified loss.

The Company recorded no consolidated provision for loan losses for the three months ended March 31, 2013 and 2012.  For the three months ended March 31, 2013, the Company decreased its allowance for loan losses allocated to comercial and industrial ("C&I") loans by $787 thousand, while increasing its allowance allocation to commercial real estate ("CRE"), real estate construction and residential mortgages (1st and 2nd liens) by $349 thousand, $704 thousand and $864 thousand, respectively.

The decrease in the allowance for loan losses allocated to C&I loans during the first quarter of 2013 reflected a 0.94% reduction in the ASC 450-20 historical loss factors rate on unimpaired pass rated C&I loans. Partially offsetting the loss factors rate reduction was a $20 million increase in the balance of unimpaired pass rated C&I loans during the first quarter of 2013, coupled with an increase of $97 thousand in specific reserves for C&I loans as computed uder ASC 310-10 at March 31, 2013 as compared to December 31, 2012.

The increase in the allowance for loan losses allocated to CRE loans was primarily due to a $39 million increase in the balance of unimpaired pass rated CRE loans, mainly due to growth in multi-family lending, versus December 31, 2012. The increases to the allowance allocated to real estate construction and residential mortgages was largely due to increases in the ASC 450-20 historical loss factors for such loans of 5.68% and 0.56%, respectively, when compared to December 31, 2012.

The changes in the ASC 450-20 loss factors rates were primarily due to an expansion of the look back period used in calculating historical losses to a rolling twelve quarter period (from an eight quarter period) for each loan segment. This change results from the Company's effort to improve the granularity of its individual loan segment charge-off history effective with the March 31, 2013 calculation.  Additionally, the expansion of the look back period reduces the volatility associated with improperly weighting short-term trends in this calculation. These changes more accurately represent the Company's incurred and expected losses at March 31, 2013 by individual loan segment.

At March 31, 2013 and December 31, 2012, the ending balance in the allowance for loan losses disaggregated by class and impairment methodology follows below (in thousands). Also shown below are total loans at March 31, 2013 and December 31, 2012 disaggregated by class and impairment methodology (in thousands).

March 31, 2013	Commercial and industrial		Commercial real estate		Real estate construction		Residential mortgages (1st and 2nd liens)		Home equity		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	437	$	-	$	-	$	618	$	165	$	56	$	-	$	1,276
Ending balance: collectively evaluated for impairment		4,908		6,570		845		1,823		759		189		1,464		16,558
Ending balance	$	5,345	$	6,570	$	845	$	2,441	$	924	$	245	$	1,464	$	17,834
Loan balances:
Ending balance: individually evaluated for impairment	$	10,545	$	8,238	$	840	$	4,976	$	750	$	324	$	-	$	25,673
Ending balance: collectively evaluated for impairment		177,230		391,032		13,235		141,991		62,713		12,525		-		798,726
Ending balance	$	187,775	$	399,270	$	14,075	$	146,967	$	63,463	$	12,849	$	-	$	824,399

December 31, 2012	Commercial and industrial		Commercial real estate		Real estate construction		Residential mortgages (1st and 2nd liens)		Home equity		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	340	$	22	$	1	$	575	$	86	$	-	$	-	$	1,024
Ending balance: collectively evaluated for impairment		5,841		6,127		140		1,001		821		189		2,638		16,757
Ending balance	$	6,181	$	6,149	$	141	$	1,576	$	907	$	189	$	2,638	$	17,781
Loan balances:
Ending balance: individually evaluated for impairment	$	10,369	$	9,443	$	1,961	$	4,660	$	502	$	21	$	-	$	26,956
Ending balance: collectively evaluated for impairment		158,340		359,828		13,508		141,915		65,966		14,267		-		753,824
Ending balance	$	168,709	$	369,271	$	15,469	$	146,575	$	66,468	$	14,288	$	-	$	780,780

The following table presents certain information pertaining to the Company's impaired loans disaggregated by class at March 31, 2013 and December 31, 2012 (in thousands):

	March 31, 2013						December 31, 2012
	Impaired Loans						Impaired Loans
	Unpaid Principal Balance		Recorded Balance		Allowance Allocated		Unpaid Principal Balance		Recorded Balance		Allowance Allocated
With no allowance recorded:
Commercial and industrial	$	8,887	$	8,887	$	-	$	7,913	$	7,492	$	-
Commercial real estate		9,223		8,238		-		8,859		7,282		-
Real estate construction		840		840		-		1,334		1,305		-
Residential mortgages (1st and 2nd liens)		2,335		2,206		-		1,918		1,788		-
Home equity		572		572		-		418		416		-
Consumer		166		166		-		21		21		-
Subtotal		22,023		20,909		-		20,463		18,304		-
With an allowance recorded:
Commercial and industrial		1,960		1,658		437		2,884		2,877		340
Commercial real estate		-		-		-		2,161		2,161		22
Real estate construction		-		-		-		656		656		1
Residential mortgages (1st and 2nd liens)		2,896		2,770		618		3,015		2,872		575
Home equity		178		178		165		86		86		86
Consumer		158		158		56		-		-		-
Subtotal		5,192		4,764		1,276		8,802		8,652		1,024
Total	$	27,215	$	25,673	$	1,276	$	29,265	$	26,956	$	1,024

The following table presents additional information pertaining to the Company's impaired loans disaggregated by class for the three months ended March 31, 2013 and 2012 (in thousands):

	Three Months Ended March 31, 2013						Three Months Ended March 31, 2012
	Impaired Loans						Impaired Loans
	Average recorded investment in impaired loans		Interest income recognized on impaired loans		Interest income recognized on a cash basis on impaired loans		Average recorded investment in impaired loans		Interest income recognized on impaired loans		Interest income recognized on a cash basis on impaired loans
Commercial and industrial	$	10,947	$	57	$	-	$	29,678	$	265	$	-
Commercial real estate		11,090		69		-		73,791		325		-
Real estate construction		1,401		-		-		12,609		181		-
Residential mortgages (1st and 2nd liens)		5,004		42		-		8,463		-		-
Home equity		751		3		-		3,993		-		-
Consumer		318		5		-		675		-		-
Total	$	29,511	$	176	$	-	$	129,209	$	771	$	-

TDRs involve modifications or renewals where the Company has granted a concession to a borrower in financial distress. The Company reviews all modifications and renewals for determination of TDR status. The Company allocated $1 million and $800 thousand of specific reserves to customers whose loan terms have been modified in TDRs as of March 31, 2013 and December 31, 2012, respectively. These loans involved the restructuring of terms to allow customers to mitigate the risk of foreclosure by meeting a lower payment requirement based upon their current cash flow. These may also include loans that renewed at existing contractual rates, but below market rates for comparable credit.

A total of $38 thousand and $35 thousand were committed to be advanced in connection with TDRs as of March 31, 2013 and December 31, 2012, respectively, representing the amount the Company is legally required to advance under existing loan agreements. These loans are not in default under the terms of the loan agreements and are accruing. It is the Company's policy to evaluate advances on such loans on a case by case basis. Absent a legal obligation to advance pursuant to the terms of the loan agreement, the Company generally will not advance funds for which it has outstanding commitments, but may do so in certain circumstances.

The following tables present certain information regarding outstanding TDRs at March 31, 2013 and December 31, 2012 (dollars in thousands), TDRs executed during the three months ended March 31, 2013 and 2012 (dollars in thousands) and TDRs with payment defaults of 90 days or more within twelve months of restructuring during the three months ended March 31, 2013 and 2012 (dollars in thousands):

	March 31, 2013				December 31, 2012
Total Troubled Debt Restructurings	Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance
Commercial and industrial		42	$	6,400		41	$	6,468
Commercial real estate		8		5,072		9		6,238
Residential mortgages (1st and 2nd liens)		18		4,441		15		3,587
Consumer		5		324		5		311
		73	$	16,237		70	$	16,604

	Three months ended						Three months ended
	March 31, 2013						March 31, 2012
			Pre-Modification		Post-Modification				Pre-Modification		Post-Modification
	Number		Outstanding		Outstanding		Number		Outstanding		Outstanding
New Troubled Debt	of		Recorded		Recorded		of		Recorded		Recorded
Restructurings	Loans		Balance		Balance		Loans		Balance		Balance
Commercial and industrial		2	$	320	$	320		9	$	3,316	$	3,316
Residential mortgages (1st and 2nd liens)		3		905		905		-		-		-
Consumer		1		17		17		-		-		-
		6	$	1,242	$	1,242		9	$	3,316	$	3,316

	Three months ended				Three months ended
	March 31, 2013				March 31, 2012
			Outstanding				Outstanding
	Number		Recorded		Number		Recorded
Defaulted Troubled Debt Restructurings	of Loans		Balance		of Loans		Balance
Commercial and industrial		-	$	-		1	$	15
Residential mortgages (1st and 2nd liens)		-		-		1		494
		-	$	-		2	$	509

Not all loan modifications are TDRs. In some cases, the Company might provide a concession, such as a reduction in interest rate, but the borrower is not experiencing financial distress. This could be the case if the Company is matching a competitor's interest rate.

The following table presents information regarding modifications and renewals executed during the three months ended March 31, 2013 and 2012 that are not considered TDRs (dollars in thousands):

	Three months ended				Three months ended
	March 31, 2013				March 31, 2012
			Outstanding				Outstanding
	Number		Recorded		Number		Recorded
Modifications Not Considered TDRs	of Loans		Balance		of Loans		Balance
Commercial and industrial		-	$	-		1	$	580
Commercial real estate		11		19,703		2		3,179
		11	$	19,703		3	$	3,759

The following is a summary of information pertaining to non-performing assets at March 31, 2013 and December 31, 2012 (in thousands):

	March 31,		December 31,
	2013		2012
Non-accrual loans	$	14,420	$	16,435
Non-accrual loans held-for-sale		-		907
Loans 90 days past due and still accruing		-		-
OREO		372		1,572
Total non-performing assets	$	14,792	$	18,914
TDRs accruing interest	$	10,247	$	9,954
TDRs nonaccruing	$	5,990	$	6,650

The following table summarizes non-accrual loans by loan class at March 31, 2013 and December 31, 2012 (dollars in thousands):

	Non-accrual Loans
						Total		% of								Total		% of
			% of			Loans		Total					% of			Loans		Total
	3/31/2013		Total			3/31/2013		Loans			12/31/2012		Total			12/31/2012		Loans
Commercial and industrial	$	6,746		46.8	%	$	187,775		0.8	%	$	6,529		39.8	%	$	168,709		0.8	%
Commercial real estate		3,972		27.5			399,270		0.5			5,192		31.6			369,271		0.7
Real estate construction		840		5.8			14,075		0.1			1,961		11.9			15,469		0.3
Residential mortgages (1st and 2nd liens)		2,336		16.2			146,967		0.3			2,466		15.0			146,575		0.3
Home equity		514		3.6			63,463		-			266		1.6			66,468		-
Consumer		12		0.1			12,849		-			21		0.1			14,288		-
Total non-accrual loans	$	14,420		100.0	%	$	824,399		1.7	%	$	16,435		100.0	%	$	780,780		2.1	%

For the non-accrual loans outstanding at the end of the reported periods, additional interest income of approximately $406 thousand and $1.4 million would have been recorded on non-accrual loans during the three months ended March 31, 2013 and 2012, respectively, if the loans had performed in accordance with their original terms.

The following table details the collateral value securing non-accrual loans at March 31, 2013 and December 31, 2012 (in thousands):

	March 31, 2013				December 31, 2012
	Non-accrual Loans				Non-accrual Loans
	Principal Balance		Collateral Value		Principal Balance		Collateral Value
Commercial and industrial (1)	$	6,746	$	5,163	$	6,529	$	4,400
Commercial real estate		3,972		10,490		5,192		12,675
Real estate construction		840		3,310		1,961		3,661
Residential mortgages (1st and 2nd liens)		2,336		3,511		2,466		5,141
Home equity		514		1,436		266		849
Consumer		12		-		21		-
Total	$	14,420	$	23,910	$	16,435	$	26,726

(1) Repayment of commercial and industrial loans is expected primarily from the cash flow of the business. The collateral typically securing these loans is a lien on all corporate assets via a blanket UCC filing and does not usually include real estate. For purposes of this disclosure, the Company has ascribed no value to the non-real estate collateral for this class of loans.

At March 31, 2013 and December 31, 2012, past due loans disaggregated by class were as follows (in thousands):

	Past Due
March 31, 2013	30 - 59 days		60 - 89 days		90 days and over		Total		Current		Total
Commercial and industrial	$	382	$	370	$	6,746	$	7,498	$	180,277	$	187,775
Commercial real estate		1,339		-		3,972		5,311		393,959		399,270
Real estate construction		-		-		840		840		13,235		14,075
Residential mortgages
(1st and 2nd liens)		2,540		-		2,336		4,876		142,091		146,967
Home equity		1,356		496		514		2,366		61,097		63,463
Consumer		79		1		12		92		12,757		12,849
Total	$	5,696	$	867	$	14,420	$	20,983	$	803,416	$	824,399

	Past Due
December 31, 2012	30 - 59 days		60 - 89 days		90 days and over		Total		Current		Total
Commercial and industrial	$	6,591	$	1,274	$	6,529	$	14,394	$	154,315	$	168,709
Commercial real estate		1,145		329		5,192		6,666		362,605		369,271
Real estate construction		1,382		-		1,961		3,343		12,126		15,469
Residential mortgages
(1st and 2nd liens)		2,867		6		2,466		5,339		141,236		146,575
Home equity		261		100		266		627		65,841		66,468
Consumer		189		18		21		228		14,060		14,288
Total	$	12,435	$	1,727	$	16,435	$	30,597	$	750,183	$	780,780

The Bank utilizes an eight-grade risk-rating system for commercial and industrial loans, commercial real estate and construction loans. Loans in risk grades 1- 4 are considered "pass" loans. The Bank's risk grades are as follows:

Risk Grade 1 – Excellent. Loans secured by liquid collateral such as certificates of deposit, reputable bank letters of credit, or other cash equivalents; loans that are guaranteed or otherwise backed by the full faith and credit of the United States government or an agency thereof, such as the Small Business Administration; or loans to any publicly held company with a current long-term debt rating of A or better.

Risk Grade 2 – Good. Loans to businesses that have strong financial statements containing an unqualified opinion from a CPA firm and at least three consecutive years of profits; loans supported by un-audited financial statements containing strong balance sheets, five consecutive years of profits, a five-year satisfactory relationship with the Bank, and key balance sheet and income statement trends that are either stable or positive; loans secured by publicly traded marketable securities where there is no impediment to liquidation; loans to individuals backed by liquid personal assets, established credit history, and unquestionable character; or loans to publicly held companies with current long-term debt ratings of Baa or better.

Risk Grade 3 – Satisfactory. Loans supported by financial statements (audited or un-audited) that indicate average or slightly below average risk and having some deficiency or vulnerability to changing economic conditions; loans with some weakness but offsetting features of other support are readily available; loans that are meeting the terms of repayment, but which may be susceptible to deterioration if adverse factors are encountered. Loans may be graded Satisfactory when there is no recent information on which to base a current risk evaluation and the following conditions apply:

· At inception, the loan was properly underwritten, did not possess an unwarranted level of credit risk, and the loan met the above criteria for a risk grade of Excellent, Good, or Satisfactory.

· At inception, the loan was secured with collateral possessing a loan value adequate to protect the Bank from loss.

· The loan has exhibited two or more years of satisfactory repayment with a reasonable reduction of the principal balance.

· During the period that the loan has been outstanding, there has been no evidence of any credit weakness. Some examples of weakness include slow payment, lack of cooperation by the borrower, breach of loan covenants, or

· The borrower is in an industry known to be experiencing problems. If any of these credit weaknesses is observed, a lower risk grade may be warranted.

Risk Grade 4 - Satisfactory/Monitored. Loans in this category are considered to be of acceptable credit quality, but contain greater credit risk than satisfactory loans due to weak balance sheets, marginal earnings or cash flow, or other uncertainties. These loans warrant a higher than average level of monitoring to ensure that weaknesses do not advance. The level of risk in a Satisfactory/Monitored loan is within acceptable underwriting guidelines so long as the loan is given the proper level of management supervision.

Risk Grade 5 - Special Mention. Loans which possess some credit deficiency or potential weakness which deserves close attention. Such loans pose an unwarranted financial risk that, if not corrected, could weaken the loan by adversely impacting the future repayment ability of the borrower. The key distinctions of a Special Mention classification are that (1) it is indicative of an unwarranted level of risk and (2) weaknesses are considered "potential," not "defined," impairments to the primary source of repayment.

Risk Grade 6 – Substandard. One or more of the following characteristics may be exhibited in loans classified Substandard:

· Loans which possess a defined credit weakness. The likelihood that a loan will be paid from the primary source of repayment is uncertain. Financial deterioration is under way and very close attention is warranted to ensure that the loan is collected without loss.

· Loans are inadequately protected by the current net worth and paying capacity of the obligor.

· The primary source of repayment is gone, and the Bank is forced to rely on a secondary source of repayment, such as collateral liquidation or guarantees.

· Loans have a distinct possibility that the Bank will sustain some loss if deficiencies are not corrected.

· Unusual courses of action are needed to maintain a high probability of repayment.

· The borrower is not generating enough cash flow to repay loan principal; however, it continues to make interest payments.

· The lender is forced into a subordinated or unsecured position due to flaws in documentation.

· Loans have been restructured so that payment schedules, terms, and collateral represent concessions to the borrower when compared to the normal loan terms.

· The lender is seriously contemplating foreclosure or legal action due to the apparent deterioration in the loan.

· There is a significant deterioration in market conditions to which the borrower is highly vulnerable.

Risk Grade 7 – Doubtful. One or more of the following characteristics may be present in loans classified Doubtful:

· Loans have all of the weaknesses of those classified as Substandard. However, based on existing conditions, these weaknesses make full collection of principal highly improbable.

· The primary source of repayment is gone, and there is considerable doubt as to the quality of the secondary source of repayment.

· The possibility of loss is high but because of certain important pending factors which may strengthen the loan, loss classification is deferred until the exact status of repayment is known.

Risk Grade 8 – Loss. Loans are considered uncollectible and of such little value that continuing to carry them as assets is not feasible. Loans will be classified Loss when it is neither practical nor desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.

At March 31, 2013 and December 31, 2012, based upon the most recent analysis performed, the following table presents the Company's loan portfolio credit risk profile by internally assigned grade disaggregated by class of loan (in thousands):

	Credit Risk Profile By Internally Assigned Grade
March 31, 2013	Commercial and industrial		Commercial real estate		Real estate construction		Residential mortgages (1st and 2nd liens)		Home equity		Consumer		Total
Grade:
Pass	$	163,819	$	353,080	$	5,283	$	141,991	$	62,949	$	12,530	$	739,652
Special mention		4,969		25,627		-		-		-		-		30,596
Substandard		18,987		20,563		8,792		4,976		514		319		54,151
Total	$	187,775	$	399,270	$	14,075	$	146,967	$	63,463	$	12,849	$	824,399

	Credit Risk Profile By Internally Assigned Grade
December 31, 2012	Commercial and industrial		Commercial real estate		Real estate construction		Residential mortgages (1st and 2nd liens)		Home equity		Consumer		Total
Grade:
Pass	$	143,804	$	311,123	$	4,790	$	141,915	$	65,966	$	14,267	$	681,865
Special mention		5,995		38,670		-		-		-		-		44,665
Substandard		18,910		19,478		10,679		4,660		502		21		54,250
Total	$	168,709	$	369,271	$	15,469	$	146,575	$	66,468	$	14,288	$	780,780

The Bank annually reviews the ratings on all commercial and industrial, commercial real estate and real estate construction loans greater than $1 million. Semi-annually, the Bank engages an independent third-party to review a significant portion of loans within these loan classes. Management uses the results of these reviews as part of its ongoing review process.

XML

STOCK-BASED COMPENSATION (Tables)

3 Months Ended

Mar. 31, 2013

STOCK-BASED COMPENSATION [Abstract]

Summary of stock option activity

A summary of stock option activity follows:

				Weighted-Average
	Number			Exercise Price
	of Shares			Per Share
Outstanding - January 1, 2013		211,500		$	15.41
Granted		25,000		$	14.26
Exercised		-			-
Forfeited or expired		(25,333	)	$	15.50
Outstanding - March 31, 2013		211,167		$	15.26

Information regarding options granted in current year

The following table presents information regarding stock options granted in 2013:

Black-Scholes Assumptions for Options Granted During the Three Months Ended March 31, 2013:
Risk-free interest rate	0.81	%
Expected dividend yield	-
Expected life in years	10
Expected volatility	43.11	%

Summary of options outstanding and exercisable

The following summarizes shares subject to purchase from stock options outstanding and exercisable as of March 31, 2013:

		Outstanding					Exercisable
				Weighted-Average					Weighted-Average
Range of				Remaining	Weighted-Average				Remaining		Weighted-Average
Exercise Prices		Shares		Contractual Life	Exercise Price		Shares		Contractual Life		Exercise Price
$	10.79 - $12.44		100,000	8.9 years	$	11.49		6,667		8.9 years	$	12.44
$	13.13 - $14.97		81,667	9.3 years	$	13.80		20,001		9.0 years	$	13.34
$	28.30 - $31.83		15,000	4.1 years	$	30.24		15,000		4.1 years	$	30.24
$	32.90 - $34.95		14,500	2.9 years	$	34.01		14,500		2.9 years	$	34.01
			211,167	8.3 years	$	15.26		56,168		6.1 years	$	23.08

XML

ACCUMULATED OTHER COMPREHENSIVE INCOME (AOCI) (Tables)

3 Months Ended

Mar. 31, 2013

ACCUMULATED OTHER COMPREHENSIVE INCOME ("AOCI") [Abstract]

Changes in AOCI by component, net of tax

The changes in the Company's AOCI by component, net of tax, for the three months ended March 31, 2013 follow (in thousands).

	Three Months Ended March 31, 2013									Three Months Ended March 31, 2012
	Unrealized Gains and Losses on Available-for-Sale Securities			Pension and Post- Retirement Plan Items			Total			Unrealized Gains and Losses on Available-for-Sale Securities			Pension and Post- Retirement Plan Items			Total
Beginning balance	$	10,553		$	(7,667	)	$	2,886		$	11,873		$	(14,943	)	$	(3,070	)
Other comprehensive loss before reclassifications		(991	)		-			(991	)		(1,573	)		(255	)		(1,828	)
Amounts reclassified from AOCI		(229	)		-			(229	)		-			-			-
Net current-period other comprehensive loss		(1,220	)		-			(1,220	)		(1,573	)		(255	)		(1,828	)
Ending balance	$	9,333		$	(7,667	)	$	1,666		$	10,300		$	(15,198	)	$	(4,898	)

Reclassifications out of AOCI

The table below presents reclassifications out of AOCI for the three months ended March 31, 2013 (in thousands).

Three Months Ended March 31, 2013 Details about AOCI Components	Amount Reclassified from AOCI			Affected Line Item in the Statement Where Net Income is Presented
Unrealized Gains and Losses on Available-for-Sale Securities	$	359		Net Gain on Sale of Securities Available for Sale
		(130	)	Income Tax Expense
Total reclassifications, net of tax	$	229

XML

REGULATORY MATTERS

3 Months Ended

Mar. 31, 2013

REGULATORY MATTERS [Abstract]

REGULATORY MATTERS

8. REGULATORY MATTERS

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital requirements that involve quantitative measures of the Company's and the Bank's assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. The Company's and the Bank's capital amounts and the Bank's classification are also subject to qualitative judgments by the regulators about components, risk weighting, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of total and Tier 1 capital, as defined in the federal banking regulations, to risk-weighted assets and of Tier 1 capital to adjusted average assets (leverage). Management believes, as of March 31, 2013, that the Company and the Bank met all such capital adequacy requirements to which it is subject.

The Bank's capital amounts and ratios were as follows (dollars in thousands):

						Minimum					Minimum to be "Well
						for capital					Capitalized" under prompt
	Actual capital ratios					adequacy					corrective action provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of March 31, 2013
Total capital to risk-weighted assets	$	165,759		17.53	%	$	75,625		8.00	%	$	94,531		10.00	%
Tier 1 capital to risk-weighted assets		153,865		16.28	%		37,812		4.00	%		56,719		6.00	%
Tier 1 capital to adjusted average assets (leverage)		153,865		9.77	%		62,997		4.00	%		78,746		5.00	%
As of December 31, 2012
Total capital to risk-weighted assets	$	162,458		18.05	%	$	72,020		8.00	%	$	90,025		10.00	%
Tier 1 capital to risk-weighted assets		151,121		16.79	%		36,010		4.00	%		54,015		6.00	%
Tier 1 capital to adjusted average assets (leverage)		151,121		9.74	%		62,092		4.00	%		77,615		5.00	%

The Company's Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios were 9.83%, 16.37% and 17.63%, respectively, at March 31, 2013.

On October 25, 2010, the Bank, following discussion with the OCC entered into the Agreement. The Agreement requires the Bank to take certain actions to address issues identified by the OCC. As of March 31, 2013, management believes it has taken significant steps to satisfy the requirements of the Agreement.

Under the Agreement, the Bank is subject to individual minimum capital ratios ("IMCRs") established by the OCC requiring Tier 1 leverage capital equal to at least 8.00% of adjusted average assets, Tier 1 risk-based capital equal to at least 10.50% of risk-weighted assets and total risk-based capital equal to at least 12.00% of risk-weighted assets. Management believes the Bank met all three IMCRs at March 31, 2013. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements.

While subject to the Agreement, the Company expects that its and the Bank's management and Board of Directors will be required to focus a substantial amount of time on complying with its terms.  There is no guarantee that the Bank will be able to fully comply with the Agreement. If the Bank fails to comply with the terms of the Agreement, it could be subject to further regulatory enforcement actions.

The ability of the Bank to pay dividends to the Company is subject to certain regulatory restrictions. Generally, dividends declared in a given year by a national bank are limited to its net profit, as defined by regulatory agencies, for that year, combined with its retained net income for the preceding two years, less any required transfer to surplus or to fund the retirement of any preferred stock, of which the Bank had none as of March 31, 2013. In addition, a national bank may not pay any dividends in an amount greater than its undivided profits and a national bank may not declare any dividends if such declaration would leave the Bank inadequately capitalized. Therefore, the ability of the Bank to declare dividends will depend on its future net income and capital requirements. In addition, under the Agreement the Bank is required to establish a dividend policy that will permit the declaration of a dividend only when the Bank is in compliance with its capital program and with the prior written determination of no supervisory objection by the OCC.

XML

STOCK-BASED COMPENSATION

3 Months Ended

Mar. 31, 2013

STOCK-BASED COMPENSATION [Abstract]

STOCK-BASED COMPENSATION

6. STOCK-BASED COMPENSATION

Under the terms of the Company's stock option plans adopted in 1999 and 2009, options have been granted to key employees and directors to purchase shares of the Company's stock. Under the 2009 Stock Incentive Plan ("the Plan"), there are 500,000 shares of the Company's common stock reserved for issuance, of which 175,000 had been granted as of March 31, 2013. There are no remaining shares reserved for issuance under the 1999 Stock Option Plan. Options are awarded by the Compensation Committee of the Board of Directors. Both plans provide that the option price shall not be less than the fair value of the common stock on the date the option is granted. All options are exercisable for a period of ten years or less. Options granted prior to 2010 vest after one year. No options were granted in 2010. Options granted in 2011 are exercisable over a three-year period commencing three years from the date of grant at a rate of one third per year.  Options granted in 2012 and 2013 are exercisable over a three-year period commencing one year from the date of grant at a rate of one third per year.

Both plans provide for but do not require the grant of stock appreciation rights ("SARs") that the holder may exercise instead of the underlying option. At March 31, 2013, there were 6,000 SARs outstanding related to options granted before 2011. The SARs had no intrinsic value at March 31, 2013. When the SAR is exercised, the underlying option is canceled. The optionee receives shares of common stock or cash with a fair market value equal to the excess of the fair value of the shares subject to the option at the time of exercise (or the portion thereof so exercised) over the aggregate option price of the shares set forth in the option agreement. The exercise of SARs is treated as the exercise of the underlying option.

In 2011 the Company granted an award of 30,000 non-qualified stock options at an exercise price of $10.79 per share to its President and Chief Executive Officer as a material inducement to employment with the Company.  The non-qualified options were not issued as part of any of the Company's registered stock-based compensation plans. The options are exercisable over a three-year period commencing three years from the date of grant at a rate of one third per year.

A summary of stock option activity follows:

				Weighted-Average
	Number			Exercise Price
	of Shares			Per Share
Outstanding - January 1, 2013		211,500		$	15.41
Granted		25,000		$	14.26
Exercised		-			-
Forfeited or expired		(25,333	)	$	15.50
Outstanding - March 31, 2013		211,167		$	15.26

The following table presents information regarding stock options granted in 2013:

Black-Scholes Assumptions for Options Granted During the Three Months Ended March 31, 2013:
Risk-free interest rate	0.81	%
Expected dividend yield	-
Expected life in years	10
Expected volatility	43.11	%

The following summarizes shares subject to purchase from stock options outstanding and exercisable as of March 31, 2013:

		Outstanding					Exercisable
				Weighted-Average					Weighted-Average
Range of				Remaining	Weighted-Average				Remaining		Weighted-Average
Exercise Prices		Shares		Contractual Life	Exercise Price		Shares		Contractual Life		Exercise Price
$	10.79 - $12.44		100,000	8.9 years	$	11.49		6,667		8.9 years	$	12.44
$	13.13 - $14.97		81,667	9.3 years	$	13.80		20,001		9.0 years	$	13.34
$	28.30 - $31.83		15,000	4.1 years	$	30.24		15,000		4.1 years	$	30.24
$	32.90 - $34.95		14,500	2.9 years	$	34.01		14,500		2.9 years	$	34.01
			211,167	8.3 years	$	15.26		56,168		6.1 years	$	23.08

The Company accounts for stock-based compensation on a modified prospective basis with the fair value of grants of employee stock options recognized in the financial statements. Compensation expense related to stock-based compensation amounted to approximately $82 thousand and $27 thousand for the three months ended March 31, 2013 and 2012, respectively. The remaining unrecognized compensation cost of approximately $635 thousand at March 31, 2013 will be expensed over the remaining weighted average vesting period of 2.8 years.

XML

INCOME TAXES

3 Months Ended

Mar. 31, 2013

INCOME TAXES [Abstract]

INCOME TAXES

7. INCOME TAXES

The Company uses an asset and liability approach to accounting for income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred tax assets are recognized if it is more likely than not that a future benefit will be realized. The Company accounts for income taxes in accordance with ASC 740, "Income Taxes," which prescribes the recognition and measurement criteria related to tax positions taken or expected to be taken in a tax return. The Company had unrecognized tax benefits including interest of approximately $34 thousand as of March 31, 2013. The Company recognizes interest and penalties accrued relating to unrecognized tax benefits in income tax expense.

The realization of deferred tax assets (net of a recorded valuation allowance) is largely dependent upon future taxable income, future reversals of existing taxable temporary differences and the ability to carryback losses to available tax years. In assessing, the need for a valuation allowance, the Company considers positive and negative evidence, including taxable income in carry-back years, scheduled reversals of deferred tax liabilities, expected future taxable income and tax planning strategies. The Company can apply a carrybackof the net operating losses for 2012 which resulted in $5 million included in income tax receivable in the accompanying consolidated statements of condition. The Company has net operating loss carryforwards of approximately $13.9 million and $24.1 million for Federal and New York State ("NYS") income tax purposes, respectively, which may be applied against future taxable income. In 2012, the Company established a full valuation reserve of $558 thousand, tax effected, on the NYS net operating loss due to the Company's significant tax-exempt investment income in NYS. The valuation allowance may be reversed to income in future periods to the extent that the related deferred tax assets are realized or when the Company returns to consistent, taxable earnings in NYS. Management believes it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with the tax effects of the deferred tax liabilities, will be sufficient to fully recover the remaining deferred tax assets. Both the Federal and NYS unused net operating loss carryforwards are expected to expire in varying amounts in the year 2032. It is anticipated that the Federal carryforward will be utilized prior to its expiration based on the Company's future years' projected earnings.

XML

FAIR VALUE

3 Months Ended

Mar. 31, 2013

FAIR VALUE [Abstract]

FAIR VALUE

9. FAIR VALUE

The Company records investments available for sale, loans held-for-sale, certain impaired loans, OREO and mortgage servicing rights at fair value. Fair value measurement is determined based on the assumptions that market participants would use in pricing the asset or liability in an exchange. The definition of fair value includes the exchange price which is the price in an orderly transaction between market participants to sell an asset or transfer a liability in the principal market for the asset or liability. Market participant assumptions include assumptions about risk, the risk inherent in a particular valuation technique used to measure fair value and/or the risk inherent in the inputs to the valuation technique, as well as the effect of credit risk on the fair value of liabilities. The Company uses three levels of the fair value inputs to measure assets, as described below.

Basis of Fair Value Measurement:

Level 1 – Valuations based on quoted prices in active markets for identical investments.

Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Level 2 inputs include: (i) quoted prices for similar investments in active markets, (ii) quoted prices for identical investments traded in non-active markets (i.e., dealer or broker markets) and (iii) inputs other than quoted prices that are observable or inputs derived from or corroborated by market data for substantially the full term of the investment.

Level 3 – Valuations based on inputs that are unobservable, supported by little or no market activity, and significant to the overall fair value measurement.

The types of instruments valued based on quoted market prices in active markets include most U.S. Treasury securities. Such instruments are generally classified within Level 1 and Level 2 of the fair value hierarchy. The Company does not adjust the quoted price for such instruments.

The types of instruments valued based on quoted prices in markets that are not active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency include U.S. Government agency securities, state and municipal obligations, MBS, CMOs and corporate bonds. Such instruments are generally classified within Level 2 of the fair value hierarchy.

The types of instruments valued based on significant unobservable inputs that reflect the Company's own assumptions about the assumptions that market participants would use in pricing an asset or liability are generally classified within Level 3 of the fair value hierarchy.

ASC 820, "Fair Value Measurements and Disclosures," presents requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term "fair value." ASC 820 provides additional guidance in determining fair values when the volume and level of activity for the asset or liability have significantly decreased, particularly when there is no active market or where the price inputs being used represent distressed sales. It also provides guidelines for making fair value measurements more consistent with principles, reaffirming the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets become inactive.

The following table presents the carrying amounts and estimated fair values of the Company's financial instruments (in thousands).

	Level in	March 31, 2013				December 31, 2012
	Fair Value	Carrying		Estimated		Carrying		Estimated
	Heirarchy	Amount		Fair Value		Amount		Fair Value
Cash and due from banks	Level 1	$	302,529	$	302,529	$	384,656	$	384,656
Cash equivalents	Level 2		1,150		1,150		1,150		1,150
Federal Reserve Bank, Federal Home Loan Bank and other stock	N/A		3,043		N/A		3,043		N/A
Investment securities held to maturity	Level 2		7,871		8,662		8,035		8,861
Investment securities available for sale	Level 2		413,277		413,277		402,353		402,353
Loans held-for-sale	Level 3		2,494		2,494		907		907
Loans, net of allowance	Level 2, 3 (1)		806,565		826,342		762,999		787,597
Accrued interest and loan fees receivable	Level 2		5,746		5,746		4,883		4,883
Non-maturity deposits	Level 2		1,153,942		1,153,942		1,187,383		1,187,383
Time deposits	Level 2		249,816		251,423		243,731		245,595
Accrued interest payable	Level 2		235		235		237		237

(1) Impaired loans are generally classified within Level 3 of the fair value hierarchy.

Fair value estimates are made at a specific point in time and may be based on judgments regarding losses expected in the future, risk, and other factors that are subjective in nature. The methods and assumptions used to produce the fair value estimates follow.

Short-term financial instruments are valued at the carrying amounts included in the condensed consolidated statements of condition, which are reasonable estimates of fair value due to the relatively short term nature of the instruments. This approach applies to cash and cash equivalents, accrued interest and loan fees receivable, non-interest-bearing demand deposits, N.O.W., money market and saving deposits and accrued interest payable. Certificates of deposit are valued using a replacement cost of funds approach.

Fair values are estimated for portfolios of loans with similar characteristics. The fair value of performing loans was calculated by discounting projected cash flows through their estimated maturity using market discount rates that reflect the general credit and interest rate characteristics of the loan category. The maturity horizon is based on the Bank's history of repayments for each type of loan and an estimate of the effect of current economic conditions. Fair value for significant non-performing loans is based on recent external appraisals of collateral, if any. If appraisals are not available, estimated cash flows are discounted using a rate commensurate with the associated risk. Assumptions regarding credit risk, cash flows, and discount rates are made using availablemarket information and specific borrower information.

OREO properties are initially recorded at fair value, less estimated costs to sell when acquired, establishing a new cost basis. Adjustments to OREO are measured at fair value, less estimated costs to sell. Fair values are generally based on third party appraisals or realtor evaluations of the property. These appraisals and evaluations may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less estimated costs to sell, an impairment loss is recognized through a valuation allowance, and the property is reported as non-recurring Level 3.

Loans identified as impaired are measured using one of three methods: the loan's observable market price, the fair value of collateral or the present value of expected future cash flows. Those measured using the loan's observable market price or the fair value of collateral are recorded at fair value. For each period presented, no impaired loans were measured using the loan's observable market price. If an impaired loan has had a charge-off or if the fair value of the collateral is less than the recorded investment in the loan, the Company establishes a specific reserve and reports the loan as non-recurring Level 3. The fair value of collateral of impaired loans is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

The fair value of loans held-for-sale is based upon binding contracts from third party investors.

The fair value of commitments to extend credit was estimated by either discounting cash flows or using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the current creditworthiness of the counter-parties. The estimated fair value of written financial guarantees and letters of credit is based on fees currently charged for similar agreements. The fees charged for the commitments were not material in amount.

Assets measured at fair value on a recurring basis are as follows (in thousands):

			Fair Value Measurements Using
			Significant Other		Significant
			Observable Inputs		Unobservable Inputs
Assets:	March 31, 2013		(Level 2)		(Level 3)
U.S. Government Agency securities		75,388		75,388		-
Corporate bonds		18,854		18,854		-
Collateralized mortgage obligations		66,104		66,104		-
Mortgage-backed securities		86,379		86,379		-
Obligations of states and political subdivisions		166,552		166,552		-
Loans held-for-sale		2,494		-		2,494
Mortgage servicing rights		2,039		-		2,039
Total	$	417,810	$	413,277	$	4,533

			Fair Value Measurements Using
			Significant Other		Significant
			Observable Inputs		Unobservable Inputs
Assets:	December 31, 2012		(Level 2)		(Level 3)
U.S. Treasury Securities	$	500	$	500	$	-
U.S. Government Agency securities		65,078		65,078		-
Corporate bonds		16,198		16,198		-
Collateralized mortgage obligations		89,692		89,692		-
Mortgage-backed securities		62,450		62,450		-
Obligations of states and political subdivisions		168,435		168,435		-
Loans held-for-sale		907		-		907
Mortgage servicing rights		1,856		-		1,856
Total	$	405,116	$	402,353	$	2,763

Assets measured at fair value on a non-recurring basis are as follows (in thousands):

			Fair Value Measurements Using
			Significant
			Unobservable
			Inputs
Assets:	March 31, 2013		(Level 3)
Impaired loans	$	9,805	$	9,805
OREO		372		372
Total	$	10,177	$	10,177

			Fair Value Measurements Using
			Significant
			Unobservable
			Inputs
Assets:	December 31, 2012		(Level 3)
Impaired loans	$	9,390	$	9,390
OREO		1,572		1,572
Total	$	10,962	$	10,962

XML

LOANS, Summary of Impaired Loans (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	$ 22,023		$ 20,463
Impaired loans with an allowance recorded, Unpaid Principal Balance	5,192		8,802
Impaired loans, Unpaid Principal Balance, Total	27,215		29,265
Impaired loans with no allowance recorded, Recorded Investment	20,909		18,304
Impaired loans with an allowance recorded, Recorded Investment	4,764		8,652
Impaired Loans, Recorded Investment, Total	25,673		26,956
Impaired Loans, No Allowance Allocated	0		0
Impaired Loans, Allowance Allocated	1,276		1,024
Average recorded investment in impaired loans	29,511	129,209
Interest income recognized on impaired loans	176	771
Interest income recognized on a cash basis on impaired loans	0	0
Commercial and Industrial [Member]
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	8,887		7,913
Impaired loans with an allowance recorded, Unpaid Principal Balance	1,960		2,884
Impaired loans with no allowance recorded, Recorded Investment	8,887		7,492
Impaired loans with an allowance recorded, Recorded Investment	1,658		2,877
Impaired Loans, No Allowance Allocated	0		0
Impaired Loans, Allowance Allocated	437		340
Average recorded investment in impaired loans	10,947	29,678
Interest income recognized on impaired loans	57	265
Interest income recognized on a cash basis on impaired loans	0	0
Commercial Real Estate [Member]
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	9,223		8,859
Impaired loans with an allowance recorded, Unpaid Principal Balance	0		2,161
Impaired loans with no allowance recorded, Recorded Investment	8,238		7,282
Impaired loans with an allowance recorded, Recorded Investment	0		2,161
Impaired Loans, No Allowance Allocated	0		0
Impaired Loans, Allowance Allocated	0		22
Average recorded investment in impaired loans	11,090	73,791
Interest income recognized on impaired loans	69	325
Interest income recognized on a cash basis on impaired loans	0	0
Real Estate Construction [Member]
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	840		1,334
Impaired loans with an allowance recorded, Unpaid Principal Balance	0		656
Impaired loans with no allowance recorded, Recorded Investment	840		1,305
Impaired loans with an allowance recorded, Recorded Investment	0		656
Impaired Loans, No Allowance Allocated	0		0
Impaired Loans, Allowance Allocated	0		1
Average recorded investment in impaired loans	1,401	12,609
Interest income recognized on impaired loans	0	181
Interest income recognized on a cash basis on impaired loans	0	0
Residential Mortgages (1st and 2nd Liens) [Member]
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	2,335		1,918
Impaired loans with an allowance recorded, Unpaid Principal Balance	2,896		3,015
Impaired loans with no allowance recorded, Recorded Investment	2,206		1,788
Impaired loans with an allowance recorded, Recorded Investment	2,770		2,872
Impaired Loans, No Allowance Allocated	0		0
Impaired Loans, Allowance Allocated	618		575
Average recorded investment in impaired loans	5,004	8,463
Interest income recognized on impaired loans	42	0
Interest income recognized on a cash basis on impaired loans	0	0
Home Equity [Member]
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	572		418
Impaired loans with an allowance recorded, Unpaid Principal Balance	178		86
Impaired loans with no allowance recorded, Recorded Investment	572		416
Impaired loans with an allowance recorded, Recorded Investment	178		86
Impaired Loans, No Allowance Allocated	0		0
Impaired Loans, Allowance Allocated	165		86
Average recorded investment in impaired loans	751	3,993
Interest income recognized on impaired loans	3	0
Interest income recognized on a cash basis on impaired loans	0	0
Consumer [Member]
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	166		21
Impaired loans with an allowance recorded, Unpaid Principal Balance	158		0
Impaired loans with no allowance recorded, Recorded Investment	166		21
Impaired loans with an allowance recorded, Recorded Investment	158		0
Impaired Loans, No Allowance Allocated	0		0
Impaired Loans, Allowance Allocated	56		0
Average recorded investment in impaired loans	318	675
Interest income recognized on impaired loans	5	0
Interest income recognized on a cash basis on impaired loans	$ 0	$ 0

XML

LOANS (Tables)

3 Months Ended

Mar. 31, 2013

LOANS [Abstract]

Categorizes total loans

At March 31, 2013 and December 31, 2012, net loans disaggregated by class consisted of the following (in thousands):

	March 31,			December 31,
	2013			2012
Commercial and industrial	$	187,775		$	168,709
Commercial real estate		399,270			369,271
Real estate construction		14,075			15,469
Residential mortgages (1st and 2nd liens)		146,967			146,575
Home equity		63,463			66,468
Consumer		12,849			14,288
Gross loans		824,399			780,780
Allowance for loan losses		(17,834	)		(17,781	)
Net loans at end of period	$	806,565		$	762,999

Summary of the activity in the allowance for loan losses by loan class

For the three months ended March 31, 2013 and 2012, the activity in the allowance for loan losses disaggregated by class is shown below (in thousands).

	Commercial and industrial			Commercial real estate		Real estate construction		Residential mortgages (1st and 2nd liens)		Home equity		Consumer			Unallocated			Total
Three months ended March 31, 2013
Balance at beginning of period	$	6,181		$	6,149	$	141	$	1,576	$	907	$	189		$	2,638		$	17,781
Charge-offs		(348	)		-		-		-		-		(11	)		-			(359	)
Recoveries		299			72		-		1		1		39			-			412
Provision for loan losses		(787	)		349		704		864		16		28			(1,174	)		-
Balance at end of period	$	5,345		$	6,570	$	845	$	2,441	$	924	$	245		$	1,464		$	17,834

	Commercial and industrial			Commercial real estate			Real estate construction			Residential mortgages (1st and 2nd liens)			Home equity			Consumer			Unallocated		Total
Three months ended March 31, 2012
Balance at beginning of period	$	25,047		$	11,029		$	623		$	2,401		$	512		$	313		$	33	$	39,958
Charge-offs		(337	)		-			-			(395	)		(61	)		(32	)		-		(825	)
Recoveries		855			-			-			1			-			19			-		875
Provision for loan losses		(1,772	)		(2,150	)		(44	)		28			804			54			3,080		-
Balance at end of period	$	23,793		$	8,879		$	579		$	2,035		$	1,255		$	354		$	3,113	$	40,008

Additional information of allowance for loan losses

At March 31, 2013 and December 31, 2012, the ending balance in the allowance for loan losses disaggregated by class and impairment methodology follows below (in thousands). Also shown below are total loans at March 31, 2013 and December 31, 2012 disaggregated by class and impairment methodology (in thousands).

March 31, 2013	Commercial and industrial		Commercial real estate		Real estate construction		Residential mortgages (1st and 2nd liens)		Home equity		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	437	$	-	$	-	$	618	$	165	$	56	$	-	$	1,276
Ending balance: collectively evaluated for impairment		4,908		6,570		845		1,823		759		189		1,464		16,558
Ending balance	$	5,345	$	6,570	$	845	$	2,441	$	924	$	245	$	1,464	$	17,834
Loan balances:
Ending balance: individually evaluated for impairment	$	10,545	$	8,238	$	840	$	4,976	$	750	$	324	$	-	$	25,673
Ending balance: collectively evaluated for impairment		177,230		391,032		13,235		141,991		62,713		12,525		-		798,726
Ending balance	$	187,775	$	399,270	$	14,075	$	146,967	$	63,463	$	12,849	$	-	$	824,399

December 31, 2012	Commercial and industrial		Commercial real estate		Real estate construction		Residential mortgages (1st and 2nd liens)		Home equity		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	340	$	22	$	1	$	575	$	86	$	-	$	-	$	1,024
Ending balance: collectively evaluated for impairment		5,841		6,127		140		1,001		821		189		2,638		16,757
Ending balance	$	6,181	$	6,149	$	141	$	1,576	$	907	$	189	$	2,638	$	17,781
Loan balances:
Ending balance: individually evaluated for impairment	$	10,369	$	9,443	$	1,961	$	4,660	$	502	$	21	$	-	$	26,956
Ending balance: collectively evaluated for impairment		158,340		359,828		13,508		141,915		65,966		14,267		-		753,824
Ending balance	$	168,709	$	369,271	$	15,469	$	146,575	$	66,468	$	14,288	$	-	$	780,780

Summary of impaired loans

The following table presents certain information pertaining to the Company's impaired loans disaggregated by class at March 31, 2013 and December 31, 2012 (in thousands):

	March 31, 2013						December 31, 2012
	Impaired Loans						Impaired Loans
	Unpaid Principal Balance		Recorded Balance		Allowance Allocated		Unpaid Principal Balance		Recorded Balance		Allowance Allocated
With no allowance recorded:
Commercial and industrial	$	8,887	$	8,887	$	-	$	7,913	$	7,492	$	-
Commercial real estate		9,223		8,238		-		8,859		7,282		-
Real estate construction		840		840		-		1,334		1,305		-
Residential mortgages (1st and 2nd liens)		2,335		2,206		-		1,918		1,788		-
Home equity		572		572		-		418		416		-
Consumer		166		166		-		21		21		-
Subtotal		22,023		20,909		-		20,463		18,304		-
With an allowance recorded:
Commercial and industrial		1,960		1,658		437		2,884		2,877		340
Commercial real estate		-		-		-		2,161		2,161		22
Real estate construction		-		-		-		656		656		1
Residential mortgages (1st and 2nd liens)		2,896		2,770		618		3,015		2,872		575
Home equity		178		178		165		86		86		86
Consumer		158		158		56		-		-		-
Subtotal		5,192		4,764		1,276		8,802		8,652		1,024
Total	$	27,215	$	25,673	$	1,276	$	29,265	$	26,956	$	1,024

The following table presents additional information pertaining to the Company's impaired loans disaggregated by class for the three months ended March 31, 2013 and 2012 (in thousands):

	Three Months Ended March 31, 2013						Three Months Ended March 31, 2012
	Impaired Loans						Impaired Loans
	Average recorded investment in impaired loans		Interest income recognized on impaired loans		Interest income recognized on a cash basis on impaired loans		Average recorded investment in impaired loans		Interest income recognized on impaired loans		Interest income recognized on a cash basis on impaired loans
Commercial and industrial	$	10,947	$	57	$	-	$	29,678	$	265	$	-
Commercial real estate		11,090		69		-		73,791		325		-
Real estate construction		1,401		-		-		12,609		181		-
Residential mortgages (1st and 2nd liens)		5,004		42		-		8,463		-		-
Home equity		751		3		-		3,993		-		-
Consumer		318		5		-		675		-		-
Total	$	29,511	$	176	$	-	$	129,209	$	771	$	-

Troubled debt restructurings

The following tables present certain information regarding outstanding TDRs at March 31, 2013 and December 31, 2012 (dollars in thousands), TDRs executed during the three months ended March 31, 2013 and 2012 (dollars in thousands) and TDRs with payment defaults of 90 days or more within twelve months of restructuring during the three months ended March 31, 2013 and 2012 (dollars in thousands):

	March 31, 2013				December 31, 2012
Total Troubled Debt Restructurings	Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance
Commercial and industrial		42	$	6,400		41	$	6,468
Commercial real estate		8		5,072		9		6,238
Residential mortgages (1st and 2nd liens)		18		4,441		15		3,587
Consumer		5		324		5		311
		73	$	16,237		70	$	16,604

	Three months ended						Three months ended
	March 31, 2013						March 31, 2012
			Pre-Modification		Post-Modification				Pre-Modification		Post-Modification
	Number		Outstanding		Outstanding		Number		Outstanding		Outstanding
New Troubled Debt	of		Recorded		Recorded		of		Recorded		Recorded
Restructurings	Loans		Balance		Balance		Loans		Balance		Balance
Commercial and industrial		2	$	320	$	320		9	$	3,316	$	3,316
Residential mortgages (1st and 2nd liens)		3		905		905		-		-		-
Consumer		1		17		17		-		-		-
		6	$	1,242	$	1,242		9	$	3,316	$	3,316

	Three months ended				Three months ended
	March 31, 2013				March 31, 2012
			Outstanding				Outstanding
	Number		Recorded		Number		Recorded
Defaulted Troubled Debt Restructurings	of Loans		Balance		of Loans		Balance
Commercial and industrial		-	$	-		1	$	15
Residential mortgages (1st and 2nd liens)		-		-		1		494
		-	$	-		2	$	509

Summary of loans modified and renewed and not considered TDRs

The following table presents information regarding modifications and renewals executed during the three months ended March 31, 2013 and 2012 that are not considered TDRs (dollars in thousands):

	Three months ended				Three months ended
	March 31, 2013				March 31, 2012
			Outstanding				Outstanding
	Number		Recorded		Number		Recorded
Modifications Not Considered TDRs	of Loans		Balance		of Loans		Balance
Commercial and industrial		-	$	-		1	$	580
Commercial real estate		11		19,703		2		3,179
		11	$	19,703		3	$	3,759

Summary of impaired and non-accrual loans

The following is a summary of information pertaining to non-performing assets at March 31, 2013 and December 31, 2012 (in thousands):

	March 31,		December 31,
	2013		2012
Non-accrual loans	$	14,420	$	16,435
Non-accrual loans held-for-sale		-		907
Loans 90 days past due and still accruing		-		-
OREO		372		1,572
Total non-performing assets	$	14,792	$	18,914
TDRs accruing interest	$	10,247	$	9,954
TDRs nonaccruing	$	5,990	$	6,650

Summarizes non-accrual loans by loan class

The following table summarizes non-accrual loans by loan class at March 31, 2013 and December 31, 2012 (dollars in thousands):

	Non-accrual Loans
						Total		% of								Total		% of
			% of			Loans		Total					% of			Loans		Total
	3/31/2013		Total			3/31/2013		Loans			12/31/2012		Total			12/31/2012		Loans
Commercial and industrial	$	6,746		46.8	%	$	187,775		0.8	%	$	6,529		39.8	%	$	168,709		0.8	%
Commercial real estate		3,972		27.5			399,270		0.5			5,192		31.6			369,271		0.7
Real estate construction		840		5.8			14,075		0.1			1,961		11.9			15,469		0.3
Residential mortgages (1st and 2nd liens)		2,336		16.2			146,967		0.3			2,466		15.0			146,575		0.3
Home equity		514		3.6			63,463		-			266		1.6			66,468		-
Consumer		12		0.1			12,849		-			21		0.1			14,288		-
Total non-accrual loans	$	14,420		100.0	%	$	824,399		1.7	%	$	16,435		100.0	%	$	780,780		2.1	%

Collateral value securing non-accrual loans

The following table details the collateral value securing non-accrual loans at March 31, 2013 and December 31, 2012 (in thousands):

	March 31, 2013				December 31, 2012
	Non-accrual Loans				Non-accrual Loans
	Principal Balance		Collateral Value		Principal Balance		Collateral Value
Commercial and industrial (1)	$	6,746	$	5,163	$	6,529	$	4,400
Commercial real estate		3,972		10,490		5,192		12,675
Real estate construction		840		3,310		1,961		3,661
Residential mortgages (1st and 2nd liens)		2,336		3,511		2,466		5,141
Home equity		514		1,436		266		849
Consumer		12		-		21		-
Total	$	14,420	$	23,910	$	16,435	$	26,726

(1) Repayment of commercial and industrial loans is expected primarily from the cash flow of the business. The collateral typically securing these loans is a lien on all corporate assets via a blanket UCC filing and does not usually include real estate. For purposes of this disclosure, the Company has ascribed no value to the non-real estate collateral for this class of loans.

Summary of current and past due loans

At March 31, 2013 and December 31, 2012, past due loans disaggregated by class were as follows (in thousands):

	Past Due
March 31, 2013	30 - 59 days		60 - 89 days		90 days and over		Total		Current		Total
Commercial and industrial	$	382	$	370	$	6,746	$	7,498	$	180,277	$	187,775
Commercial real estate		1,339		-		3,972		5,311		393,959		399,270
Real estate construction		-		-		840		840		13,235		14,075
Residential mortgages
(1st and 2nd liens)		2,540		-		2,336		4,876		142,091		146,967
Home equity		1,356		496		514		2,366		61,097		63,463
Consumer		79		1		12		92		12,757		12,849
Total	$	5,696	$	867	$	14,420	$	20,983	$	803,416	$	824,399

	Past Due
December 31, 2012	30 - 59 days		60 - 89 days		90 days and over		Total		Current		Total
Commercial and industrial	$	6,591	$	1,274	$	6,529	$	14,394	$	154,315	$	168,709
Commercial real estate		1,145		329		5,192		6,666		362,605		369,271
Real estate construction		1,382		-		1,961		3,343		12,126		15,469
Residential mortgages
(1st and 2nd liens)		2,867		6		2,466		5,339		141,236		146,575
Home equity		261		100		266		627		65,841		66,468
Consumer		189		18		21		228		14,060		14,288
Total	$	12,435	$	1,727	$	16,435	$	30,597	$	750,183	$	780,780

Credit risk profile by internally assigned grade

At March 31, 2013 and December 31, 2012, based upon the most recent analysis performed, the following table presents the Company's loan portfolio credit risk profile by internally assigned grade disaggregated by class of loan (in thousands):

	Credit Risk Profile By Internally Assigned Grade
March 31, 2013	Commercial and industrial		Commercial real estate		Real estate construction		Residential mortgages (1st and 2nd liens)		Home equity		Consumer		Total
Grade:
Pass	$	163,819	$	353,080	$	5,283	$	141,991	$	62,949	$	12,530	$	739,652
Special mention		4,969		25,627		-		-		-		-		30,596
Substandard		18,987		20,563		8,792		4,976		514		319		54,151
Total	$	187,775	$	399,270	$	14,075	$	146,967	$	63,463	$	12,849	$	824,399

	Credit Risk Profile By Internally Assigned Grade
December 31, 2012	Commercial and industrial		Commercial real estate		Real estate construction		Residential mortgages (1st and 2nd liens)		Home equity		Consumer		Total
Grade:
Pass	$	143,804	$	311,123	$	4,790	$	141,915	$	65,966	$	14,267	$	681,865
Special mention		5,995		38,670		-		-		-		-		44,665
Substandard		18,910		19,478		10,679		4,660		502		21		54,250
Total	$	168,709	$	369,271	$	15,469	$	146,575	$	66,468	$	14,288	$	780,780

XML

FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013 Corporation
Summary of Significant Accounting Policies (Textual) [Abstract]
Ownership percentage (in hundredths)	100.00%
Number of corporation used to acquire foreclosed real estate	2
Maximum period for accrued interest for all class of loans	90 days
Threshold for non-accrual loans to be evaluated individually for impairment	$ 250

XML

LOANS (Details Textual) (USD $)	3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012	Dec. 31, 2011
Allowance for loan losses (Textual) [Abstract]
Allowance for Loan Losses	$ 17,834,000	$ 17,781,000	$ 40,008,000	$ 39,958,000
Allowance for Loan Losses (Additional Textual) [Abstract]
Number of consecutive years	5 years
Threshold loan amount for annual rating review	1,000,000
Allocation of specific reserve regarding troubled debt restructuring	1,000,000	800,000
Troubled debt restructuring funds committed	38,000	35,000
Minimum repayment period	2 years
Commercial and Industrial [Member]
Allowance for loan losses (Textual) [Abstract]
Allowance for Loan Losses	$ 5,345,000	$ 6,181,000	$ 23,793,000	$ 25,047,000

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) [Abstract]
Net Income	$ 2,709	$ 1,168
Other Comprehensive Loss, Net of Taxes and Reclassification Adjustments:
Decrease in Unrealized Gain on Securities Available for Sale Arising During the Period	(1,220)	(1,573)
Pension and Post-Retirement Plan Benefit Obligation	0	(255)
Total Other Comprehensive Loss, Net of Taxes	(1,220)	(1,828)
Total Comprehensive Income (Loss)	$ 1,489	$ (660)

XML

INVESTMENT SECURITIES

3 Months Ended

Mar. 31, 2013

INVESTMENT SECURITIES [Abstract]

INVESTMENT SECURITIES

3. INVESTMENT SECURITIES

At the time of purchase of a security, the Company designates the security as either available for sale or held to maturity, depending upon investment objectives, liquidity needs and intent. Securities held to maturity are stated at cost, adjusted for premium amortized or discount accreted, if any. The Company has the positive intent and ability to hold such securities to maturity. Securities available for sale are stated at estimated fair value. Unrealized gains and losses are excluded from income and reported net of tax as accumulated other comprehensive income (loss) as a separate component of stockholders' equity until realized. Interest earned on securities is included in interest income. Realized gains and losses on the sale of securities are reported in the consolidated statements of operations and determined using the adjusted cost of the specific security sold.

The amortized cost, estimated fair value and gross unrealized gains and losses of the Company's investment securities available for sale and held to maturity at March 31, 2013 and December 31, 2012 follow (in thousands).

	March 31, 2013									December 31, 2012
			Gross		Gross			Estimated				Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
Available for sale:
U.S. Treasury securities	$	-	$	-	$	-		$	-	$	500	$	-	$	-		$	500
U.S. government agency securities		75,533		59		(204	)		75,388		65,085		70		(77	)		65,078
Obligations of states and political subdivisions		153,701		12,851		-			166,552		155,121		13,314		-			168,435
Collateralized mortgage obligations		64,724		1,449		(69	)		66,104		87,624		2,148		(80	)		89,692
Mortgage-backed securities		86,156		500		(277	)		86,379		61,750		766		(66	)		62,450
Corporate bonds		18,507		362		(15	)		18,854		15,701		497		-			16,198
Total available for sale securities		398,621		15,221		(565	)		413,277		385,781		16,795		(223	)		402,353
Held to maturity:
Obligations of states and political subdivisions		7,871		791		-			8,662		8,035		826		-			8,861
Total investment securities	$	406,492	$	16,012	$	(565	)	$	421,939	$	393,816	$	17,621	$	(223	)	$	411,214

At March 31, 2013 and December 31, 2012, investment securities carried at $278 million and $286 million, respectively, were pledged to secure trust deposits and public funds on deposit.

The amortized cost, contractual maturities and estimated fair value of the Company's investment securities at March 31, 2013 (in thousands) are presented in the table below. Collateralized mortgage obligations ("CMOs") and mortgage-backed securities ("MBS") assume maturity dates pursuant to average lives.

	March 31, 2013
	Amortized		Estimated
	Cost		Fair Value
Securities available for sale:
Due in one year or less	$	42,434	$	43,232
Due from one to five years		116,217		123,531
Due from five to ten years		209,792		216,357
Due after ten years		30,178		30,157
Total securities available for sale		398,621		413,277
Securities held to maturity:
Due in one year or less		1,535		1,545
Due from one to five years		5,938		6,672
Due from five to ten years		398		445
Total securities held to maturity		7,871		8,662
Total investment securities	$	406,492	$	421,939

The proceeds from sales of securities available for sale and the associated net realized gains follow (in thousands):

	Three Months Ended
	March 31,
	2013		2012
Proceeds	$	10,475	$	-
Gross realized gains		359		-
Gross realized losses		-		-
Net realized gains	$	359	$	-

The table below indicates the length of time individual securities, both held to maturity and available for sale, have been held in a continuous unrealized loss position at the date indicated (in thousands).

			Less than 12 months				12 months or longer				Total
As of March 31, 2013	Number of		Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
Type of securities	Securities		Fair value		Losses		Fair value		Losses		Fair value		Losses
U.S. government agency securities		8	$	38,820	$	204	$	-	$	-	$	38,820	$	204
Collateralized mortgage obligations		3		10,177		69		-		-		10,177		69
Mortgage-backed securities		9		30,696		277		-		-		30,696		277
Corporate bonds		2		5,520		15		-		-		5,520		15
Total		22	$	85,213	$	565	$	-	$	-	$	85,213	$	565

			Less than 12 months				12 months or longer				Total
As of December 31, 2012	Number of		Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
Type of securities	Securities		Fair value		Losses		Fair value		Losses		Fair value		Losses
U.S. government agency securities		6	$	28,958	$	77	$	-	$	-	$	28,958	$	77
Collateralized mortgage obligations		2		7,878		80		-		-		7,878		80
Mortgage-backed securities		4		14,098		66		-		-		14,098		66
Total		12	$	50,934	$	223	$	-	$	-	$	50,934	$	223

The Company's management evaluates securities for other-than-temporary impairment ("OTTI") at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. All of the Company's investment securities classified as available-for-sale or held-to-maturity are evaluated for OTTI under ASC 320, "Accounting for Certain Investments in Debt and Equity Securities." In determining OTTI under ASC 320, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than amortized cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an OTTI decline exists involves a high degree of subjectivity and judgment and is based on information available to management at a point in time. An OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

When an OTTI occurs, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss. If an entity intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the OTTI is recognized in earnings equal to the entire difference between the investment's amortized cost and its estimated fair value at the balance sheet date. If an entity 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 less any current-period loss, the OTTI is separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total 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 tax benefit. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

Upon review of the considerations mentioned here, no OTTI was deemed to be warranted at March 31, 2013.

XML

ACCUMULATED OTHER COMPREHENSIVE INCOME (AOCI) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Accumulated Other Comprehensive Income [Roll Forward]
Beginning balance	$ 2,886	$ (3,070)
Other comprehensive loss before reclassifications	(991)	(1,828)
Amounts reclassified from AOCI	(229)	0
Net current-period other comprehensive loss	(1,220)	(1,828)
Ending balance	1,666	(4,898)
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Net Gain on Sale of Securities Available for Sale	359	0
Income Tax Expense	483	690
Total reclassifications, net of tax	(229)	0
Unrealized gains and Losses on available-for-sale securities [Member]
Accumulated Other Comprehensive Income [Roll Forward]
Beginning balance	10,553	11,873
Other comprehensive loss before reclassifications	(991)	(1,573)
Amounts reclassified from AOCI	(229)	0
Net current-period other comprehensive loss	(1,220)	(1,573)
Ending balance	9,333	10,300
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Total reclassifications, net of tax	(229)	0
Unrealized gains and Losses on available-for-sale securities [Member] | Reclassification Out Of Accumulated Other Comprehensive Income [Member]
Accumulated Other Comprehensive Income [Roll Forward]
Amounts reclassified from AOCI	229
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Net Gain on Sale of Securities Available for Sale	359
Income Tax Expense	(130)
Total reclassifications, net of tax	229
Pension and postretirement plan items [Member]
Accumulated Other Comprehensive Income [Roll Forward]
Beginning balance	(7,667)	(14,943)
Other comprehensive loss before reclassifications	0	(255)
Amounts reclassified from AOCI	0	0
Net current-period other comprehensive loss	0	(255)
Ending balance	(7,667)	(15,198)
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Total reclassifications, net of tax	$ 0	$ 0

XML

LOANS, Loans and Allowance for Loan Losses by Risk Rating (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013		Mar. 31, 2012	Dec. 31, 2012
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	$ 14,420			$ 16,435
Percentage of Total (in hundredths)	100.00%			100.00%
Total Loans	824,399			780,780
Percentage of Total Loans (in hundredths)	1.70%			2.10%
Additional interest income for the non-accrual loans outstanding at the end of the reported periods	406		1,400
Collateral value securing non-accrual loans [Abstract]
Non-accrual Loans principal balance	14,420			16,435
Non-accrual loans collateral value	23,910			26,726
Commercial and Industrial [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	6,746	[1]		6,529	[1]
Percentage of Total (in hundredths)	46.80%			39.80%
Total Loans	187,775			168,709
Percentage of Total Loans (in hundredths)	0.80%			0.80%
Collateral value securing non-accrual loans [Abstract]
Non-accrual Loans principal balance	6,746	[1]		6,529	[1]
Non-accrual loans collateral value	5,163	[1]		4,400	[1]
Commercial Real Estate [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	3,972			5,192
Percentage of Total (in hundredths)	27.50%			31.60%
Total Loans	399,270			369,271
Percentage of Total Loans (in hundredths)	0.50%			0.70%
Collateral value securing non-accrual loans [Abstract]
Non-accrual Loans principal balance	3,972			5,192
Non-accrual loans collateral value	10,490			12,675
Real Estate Construction [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	840			1,961
Percentage of Total (in hundredths)	5.80%			11.90%
Total Loans	14,075			15,469
Percentage of Total Loans (in hundredths)	0.10%			0.30%
Collateral value securing non-accrual loans [Abstract]
Non-accrual Loans principal balance	840			1,961
Non-accrual loans collateral value	3,310			3,661
Residential Mortgages (1st and 2nd Liens) [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	2,336			2,466
Percentage of Total (in hundredths)	16.20%			15.00%
Total Loans	146,967			146,575
Percentage of Total Loans (in hundredths)	0.30%			0.30%
Collateral value securing non-accrual loans [Abstract]
Non-accrual Loans principal balance	2,336			2,466
Non-accrual loans collateral value	3,511			5,141
Home Equity [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	514			266
Percentage of Total (in hundredths)	3.60%			1.60%
Total Loans	63,463			66,468
Percentage of Total Loans (in hundredths)	0.00%			0.00%
Collateral value securing non-accrual loans [Abstract]
Non-accrual Loans principal balance	514			266
Non-accrual loans collateral value	1,436			849
Consumer [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	12			21
Percentage of Total (in hundredths)	0.10%			0.10%
Total Loans	12,849			14,288
Percentage of Total Loans (in hundredths)	0.00%			0.00%
Collateral value securing non-accrual loans [Abstract]
Non-accrual Loans principal balance	12			21
Non-accrual loans collateral value	$ 0			$ 0

[1] Repayment of commercial and industrial loans is expected primarily from the cash flow of the business. The collateral typically securing these loans is a lien on all corporate assets via a blanket UCC filing and does not usually include real estate. For purposes of this disclosure, the Company has ascribed no value to the non-real estate collateral for this class of loans.

XML

INVESTMENT SECURITIES (Tables)

3 Months Ended

Mar. 31, 2013

INVESTMENT SECURITIES [Abstract]

Amortized cost, estimated fair values, and gross unrealized gains and losses of securities available for sale and held to maturity

The amortized cost, estimated fair value and gross unrealized gains and losses of the Company's investment securities available for sale and held to maturity at March 31, 2013 and December 31, 2012 follow (in thousands).

	March 31, 2013									December 31, 2012
			Gross		Gross			Estimated				Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
Available for sale:
U.S. Treasury securities	$	-	$	-	$	-		$	-	$	500	$	-	$	-		$	500
U.S. government agency securities		75,533		59		(204	)		75,388		65,085		70		(77	)		65,078
Obligations of states and political subdivisions		153,701		12,851		-			166,552		155,121		13,314		-			168,435
Collateralized mortgage obligations		64,724		1,449		(69	)		66,104		87,624		2,148		(80	)		89,692
Mortgage-backed securities		86,156		500		(277	)		86,379		61,750		766		(66	)		62,450
Corporate bonds		18,507		362		(15	)		18,854		15,701		497		-			16,198
Total available for sale securities		398,621		15,221		(565	)		413,277		385,781		16,795		(223	)		402,353
Held to maturity:
Obligations of states and political subdivisions		7,871		791		-			8,662		8,035		826		-			8,861
Total investment securities	$	406,492	$	16,012	$	(565	)	$	421,939	$	393,816	$	17,621	$	(223	)	$	411,214

Investment securities amortized cost, maturities, and approximate fair value

The amortized cost, contractual maturities and estimated fair value of the Company's investment securities at March 31, 2013 (in thousands) are presented in the table below. Collateralized mortgage obligations ("CMOs") and mortgage-backed securities ("MBS") assume maturity dates pursuant to average lives.

	March 31, 2013
	Amortized		Estimated
	Cost		Fair Value
Securities available for sale:
Due in one year or less	$	42,434	$	43,232
Due from one to five years		116,217		123,531
Due from five to ten years		209,792		216,357
Due after ten years		30,178		30,157
Total securities available for sale		398,621		413,277
Securities held to maturity:
Due in one year or less		1,535		1,545
Due from one to five years		5,938		6,672
Due from five to ten years		398		445
Total securities held to maturity		7,871		8,662
Total investment securities	$	406,492	$	421,939

Proceeds from sales of securities available for sale and the associated realized securities gains and losses

The proceeds from sales of securities available for sale and the associated net realized gains follow (in thousands):

	Three Months Ended
	March 31,
	2013		2012
Proceeds	$	10,475	$	-
Gross realized gains		359		-
Gross realized losses		-		-
Net realized gains	$	359	$	-

Length of time individual securities for held-to-maturity and available-for-sale held in a continuous unrealized loss position

The table below indicates the length of time individual securities, both held to maturity and available for sale, have been held in a continuous unrealized loss position at the date indicated (in thousands).

			Less than 12 months				12 months or longer				Total
As of March 31, 2013	Number of		Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
Type of securities	Securities		Fair value		Losses		Fair value		Losses		Fair value		Losses
U.S. government agency securities		8	$	38,820	$	204	$	-	$	-	$	38,820	$	204
Collateralized mortgage obligations		3		10,177		69		-		-		10,177		69
Mortgage-backed securities		9		30,696		277		-		-		30,696		277
Corporate bonds		2		5,520		15		-		-		5,520		15
Total		22	$	85,213	$	565	$	-	$	-	$	85,213	$	565

			Less than 12 months				12 months or longer				Total
As of December 31, 2012	Number of		Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
Type of securities	Securities		Fair value		Losses		Fair value		Losses		Fair value		Losses
U.S. government agency securities		6	$	28,958	$	77	$	-	$	-	$	28,958	$	77
Collateralized mortgage obligations		2		7,878		80		-		-		7,878		80
Mortgage-backed securities		4		14,098		66		-		-		14,098		66
Total		12	$	50,934	$	223	$	-	$	-	$	50,934	$	223