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 SEPTEMBER 30, 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).

Yeso No x

As of October 24, 2013, there were 11,573,014 shares of registrant’s Common Stock outstanding.

SUFFOLK BANCORP

Form 10-Q

For the Quarterly Period Ended September 30, 2013

Table of Contents

		Page
	PART I
Item 1.	Financial Statements
	Condensed Consolidated Statements of Condition (Unaudited) as of September 30, 2013 and December 31, 2012	2
	Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2013 and 2012	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the Three and Nine Months Ended September 30, 2013 and 2012	4
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Nine Months Ended September 30, 2013 and 2012	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 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	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	43
	PART II
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	44
Item 6.	Exhibits	44
	Signatures	45

1

PART I

ITEM 1. – FINANCIAL STATEMENTS

SUFFOLK BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)

September 30, 2013 and December 31, 2012

(dollars in thousands, except per share data)

	September 30, 2013			December 31, 2012
ASSETS
Cash and cash equivalents
Cash and non-interest-bearing deposits due from banks	$	62,139		$	80,436
Interest-bearing deposits due from banks		147,497			304,220
Federal funds sold		1,000			1,150
Total cash and cash equivalents		210,636			385,806
Interest-bearing time deposits in other banks		10,000			-
Federal Reserve Bank,  Federal Home Loan Bank and other stock		2,916			3,043
Investment securities:
Available for sale, at fair value		414,151			402,353
Held to maturity (fair value of $7,793 and $8,861, respectively)		7,150			8,035
Total investment securities		421,301			410,388
Loans		999,329			780,780
Allowance for loan losses		17,619			17,781
Net loans		981,710			762,999
Loans held-for-sale		613			907
Premises and equipment, net		26,352			27,656
Bank owned life insurance		38,399			-
Deferred taxes		15,731			11,385
Income tax receivable		5,043			5,406
Other real estate owned ("OREO")		-			1,572
Accrued interest and loan fees receivable		5,966			4,883
Goodwill and other intangibles		2,983			2,670
Other assets		3,412			5,749
TOTAL ASSETS	$	1,725,062		$	1,622,464
LIABILITIES & STOCKHOLDERS' EQUITY
Demand deposits	$	649,572		$	615,120
Saving, N.O.W. and money market deposits		650,785			572,263
Time certificates of $100,000 or more		168,001			165,731
Other time deposits		68,892			78,000
Total deposits		1,537,250			1,431,114
Unfunded pension liability		7,733			7,781
Capital leases		4,635			4,688
Other liabilities		13,774			14,896
TOTAL LIABILITIES		1,563,392			1,458,479
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock (par value $2.50; 15,000,000 shares authorized; 13,738,752 shares and 13,732,085 shares issued at September 30, 2013 and December 31, 2012, respectively;11,573,014 shares and 11,566,347 shares outstanding at September 30, 2013 and December 31, 2012, respectively)		34,348			34,330
Surplus		43,069			42,628
Retained earnings		98,945			89,555
Treasury stock at par (2,165,738 shares)		(5,414	)		(5,414	)
Accumulated other comprehensive (loss) income, net of tax		(9,278	)		2,886
TOTAL STOCKHOLDERS' EQUITY		161,670			163,985
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY	$	1,725,062		$	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 and Nine Months Ended September 30, 2013 and 2012

(dollars in thousands, except per share data)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013		2012			2013		2012
INTEREST INCOME
Loans and loan fees	$	11,464	$	11,825		$	33,796	$	37,146
U.S. Government agency obligations		592		30			1,405		34
Obligations of states and political subdivisions		1,477		1,517			4,466		4,569
Collateralized mortgage obligations		386		1,256			1,767		3,649
Mortgage-backed securities		518		145			1,357		171
Corporate bonds		92		72			305		88
Federal funds sold and interest-bearing deposits due from banks		140		168			502		382
Dividends		36		28			111		91
Total interest income		14,705		15,041			43,709		46,130
INTEREST EXPENSE
Saving, N.O.W. and money market deposits		308		286			888		906
Time certificates of $100,000 or more		280		372			874		1,217
Other time deposits		145		229			486		767
Total interest expense		733		887			2,248		2,890
Net interest income		13,972		14,154			41,461		43,240
Provision for loan losses		-		12,000			-		9,600
Net interest income after provision for loan losses		13,972		2,154			41,461		33,640
NON-INTEREST INCOME
Service charges on deposit accounts		964		1,022			2,839		2,972
Other service charges, commissions and fees		928		927			2,451		2,523
Fiduciary fees		279		266			815		675
Net gain (loss) on sale of securities available for sale		3		(162	)		395		(162	)
Net gain (loss) on sale of portfolio loans		-		(712	)		445		(712	)
Net gain on sale of mortgage loans originated for sale		142		341			973		760
Gain on Visa shares sold		3,836		-			3,836		-
Income from bank owned life insurance		357		-			399		-
Other operating income		78		199			215		481
Total non-interest income		6,587		1,881			12,368		6,537
OPERATING EXPENSES
Employee compensation and benefits		8,709		9,486			24,037		26,945
Occupancy expense		1,585		1,480			4,787		4,210
Equipment expense		616		509			1,745		1,512
Consulting and professional services		735		781			1,881		2,421
FDIC assessment		373		508			1,414		1,056
Data processing		607		637			1,823		1,731
Accounting and audit fees		152		167			351		910
Branch consolidation costs		460		-			460		-
Other operating expenses		1,853		3,603			5,085		7,130
Total operating expenses		15,090		17,171			41,583		45,915
Income (loss) before income tax expense (benefit)		5,469		(13,136	)		12,246		(5,738	)
Income tax expense (benefit)		1,557		(3,975	)		2,856		(1,945	)
NET INCOME (LOSS)	$	3,912	$	(9,161	)	$	9,390	$	(3,793	)
EARNINGS (LOSS) PER COMMON SHARE - BASIC	$	0.34	$	(0.94	)	$	0.81	$	(0.39	)
EARNINGS (LOSS) PER COMMON SHARE - DILUTED	$	0.34	$	(0.94	)	$	0.81	$	(0.39	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES - BASIC		11,573,014		9,837,959			11,569,961		9,764,133
WEIGHTED AVERAGE NUMBER OF COMMON SHARES - DILUTED		11,606,702		9,837,959			11,583,044		9,764,133

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 and Nine Months Ended September 30, 2013 and 2012

(dollars in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Net income (loss)	$	3,912		$	(9,161	)	$	9,390		$	(3,793	)
Other comprehensive (loss) income, net of taxes and reclassification adjustments:
Net change in unrealized (loss) gain on securities available for sale arising during the period		(1,445	)		3,479			(11,887	)		819
Pension and post-retirement plan benefit obligation		-			(1,116	)		(277	)		(1,371	)
Total other comprehensive (loss) income, net of taxes		(1,445	)		2,363			(12,164	)		(552	)
Total comprehensive income (loss)	$	2,467		$	(6,798	)	$	(2,774	)	$	(4,345	)

See accompanying notes to unaudited condensed consolidated financial statements.

SUFFOLK BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)

For the Nine Months Ended September 30, 2013 and 2012

(dollars in thousands)

	Nine Months Ended September 30,
	2013			2012
Common stock
Balance, January 1	$	34,330		$	34,330
Stock options exercised		18			-
Ending balance		34,348			34,330
Surplus
Balance, January 1		42,628			24,010
Private equity offering, net of $2,239 of stock issuance costs		-			18,162
Stock options exercised		74			-
Stock-based compensation		367			304
Ending balance		43,069			42,476
Retained earnings
Balance, January 1		89,555			91,303
Net income (loss)		9,390			(3,793	)
Ending balance		98,945			87,510
Treasury stock
Balance, January 1		(5,414	)		(10,013	)
Reissuance of 1,839,533 common shares from treasury in connection with private equity offering		-			4,599
Ending balance		(5,414	)		(5,414	)
Accumulated other comprehensive income (loss), net of tax
Balance, January 1		2,886			(3,070	)
Other comprehensive loss		(12,164	)		(552	)
Ending balance		(9,278	)		(3,622	)
Total stockholders' equity	$	161,670		$	155,280

See accompanying notes to unaudited condensed consolidated financial statements.

4

SUFFOLK BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the Nine Months Ended September 30, 2013 and 2012

(dollars in thousands)

	Nine Months Ended September 30,
	2013			2012
NET INCOME (LOSS)	$	9,390		$	(3,793	)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Provision for loan losses		-			9,600
Depreciation and amortization		2,221			1,928
Stock-based compensation		367			304
Net amortization of premiums		1,002			1,114
Originations of mortgage loans for sale		(38,438	)		(30,302	)
Proceeds from sale of mortgage loans originated for sale		43,378			31,062
Gain on sale of mortgage loans originated for sale		(973	)		(760	)
(Gain) loss on sale of portfolio loans		(445	)		712
Increase in other intangibles		(313	)		(100	)
Deferred tax expense		2,434			1,929
Decrease (increase) in income tax receivable		363			(3,879	)
(Increase) decrease in accrued interest and loan fees receivable		(1,083	)		1,313
Decrease in other assets		2,337			1,624
Adjustment to unfunded pension liability		(48	)		3,112
(Decrease) increase in other liabilities		(1,399	)		1,580
Income from bank owned life insurance		(399	)		-
Gain on Visa shares sold		(3,836	)		-
Loss on sale and writedowns of OREO		47			600
(Gain) loss on sale of securities available for sale		(395	)		162
Net cash provided by operating activities		14,210			16,206
CASH FLOWS FROM INVESTING ACTIVITIES
Principal payments on investment securities		49,307			22,244
Proceeds from sale of investment securities - available for sale		13,427			3,584
Maturities of investment securities - available for sale		22,001			32,294
Purchases of investment securities - available for sale		(115,803	)		(92,808	)
Maturities of investment securities - held to maturity		1,481			2,135
Purchases of investment securities -  held to maturity		(600	)		(990	)
Increase in interest-bearing time deposits in other banks		(10,000	)		-
Decrease in Federal Reserve Bank, Federal Home Loan Bank and other stock		127			168
Proceeds from sale of portfolio loans		1,349			46,343
Loan (originations) repayments - net		(223,288	)		120,121
Proceeds from sale of Visa shares		3,836			-
Proceeds from sale of OREO		1,525			-
Increase in bank owned life insurance		(38,000	)		-
Purchases of premises and equipment - net		(917	)		(1,483	)
Net cash (used in) provided by investing activities		(295,555	)		131,608
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts		106,136			61,242
Proceeds from private equity offering, net		-			22,761
Proceeds from stock options exercised		92			-
Decrease  in capital lease payable		(53	)		(30	)
Net cash provided by financing activities		106,175			83,973
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(175,170	)		231,787
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		385,806			172,559
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	210,636		$	404,346
SUPPLEMENTAL DATA:
Interest paid	$	2,263		$	2,951
Income taxes paid	$	53		$	-
Loans transferred to held-for-sale	$	-		$	53,843
Loans transferred to OREO	$	-		$	372

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 September 30, 2013 and December 31, 2012, its condensed consolidated statements of operations for the three and nine months ended September 30, 2013 and 2012, its condensed consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2013 and 2012, its condensed consolidated statements of stockholders’ equity for the nine months ended September 30, 2013 and 2012 and its condensed consolidated statements of cash flows for the nine months ended September 30, 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 and nine months ended September 30, 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. Loans of all classes will 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, after a well-documented analysis by management, it has been determined that 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.

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, multifamily, real estate construction, residential mortgages, 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 impaired 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. 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 third parties. Changes in fair value of loans held-for-sale are recognized in earnings.

Bank Owned Life Insurance - Bank owned life insurance is recorded at the lower of the cash surrender value or the amount that can be realized under the insurance policy and is included as an asset in the consolidated statements of condition. Changes in the cash surrender value and insurance benefit payments are recorded in non-interest income in the consolidated statements of operations.

Dividend Restriction - Banking regulations 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.)

Derivatives- Derivatives are contracts between two parties that specify conditions under which payments are to be made between the parties. The only derivative held by the Company relates to the swap agreement with the purchaser of VISA Class B shares, which provides for settlements between parties in the event that VISA makes subsequent revisions to the conversion ratio of VISA Class B shares to VISA Class A shares. The Company records its derivative on the balance sheet at fair value. Changes in fair value are recognized in earnings in the period of change. (See also Investment Securities, Fair Value and Subsequent Event footnotes contained herein.)

Recent Accounting Guidance – On July 18, 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-11, Income Taxes (Topic 740), “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” to clarify the balance sheet presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists.  The ASU requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Management intends to adopt ASU 2013-111 effective January 1, 2014, and does not believe that the adoption will have a material effect on the Company’s consolidated financial statements.

In February 2013, the FASB issued 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 consolidated results of operations or financial condition.

7

2. ACCUMULATED OTHER COMPREHENSIVE INCOME (“AOCI”)

The changes in the Company’s AOCI by component, net of tax, for the three and nine months ended September 30, 2013 and 2012 follow (in thousands). The decrease in net unrealized gains on available for sale securities for both the three and nine months ended September 30, 2013 resulted solely from the negative impact of higher interest rates in 2013.

	Three Months Ended September 30, 2013									Three Months Ended September 30, 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	$	111		$	(7,944	)	$	(7,833	)	$	9,213	$	(15,198	)	$	(5,985	)
Other comprehensive loss (income) before reclassifications		(1,443	)		-			(1,443	)		3,376		(1,116	)		2,260
Amounts reclassified from AOCI		(2	)		-			(2	)		103		-			103
Net other comprehensive loss (income)		(1,445	)		-			(1,445	)		3,479		(1,116	)		2,363
Ending balance	$	(1,334	)	$	(7,944	)	$	(9,278	)	$	12,692	$	(16,314	)	$	(3,622	)

	Nine Months Ended September 30, 2013									Nine Months Ended September 30, 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 (income) before reclassifications		(11,635	)		(277	)		(11,912	)		716		(1,371	)		(655	)
Amounts reclassified from AOCI		(252	)		-			(252	)		103		-			103
Net other comprehensive loss (income)		(11,887	)		(277	)		(12,164	)		819		(1,371	)		(552	)
Ending balance	$	(1,334	)	$	(7,944	)	$	(9,278	)	$	12,692	$	(16,314	)	$	(3,622	)

The table below presents reclassifications out of AOCI for the three and nine months ended September 30, 2013 (in thousands).

	Amount Reclassified from AOCI
Details about AOCI Components	Three Months Ended September 30, 2013			Nine Months Ended September 30, 2013			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available for sale securities	$	3		$	395		Net gain (loss) on sale of securities available for sale
		(1	)		(143	)	Income tax expense (benefit)
Total reclassifications, net of tax	$	2		$	252

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. Changes in unrealized gains and losses are reported, net of tax, in the consolidated statements of comprehensive income (loss). 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.

8

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 September 30, 2013 and December 31, 2012 follow (in thousands).

	September 30, 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		109,338		-		(6,828	)		102,510		65,085		70		(77	)		65,078
Obligations of states and political subdivisions		150,955		8,828		-			159,783		155,121		13,314		-			168,435
Collateralized mortgage obligations		36,208		716		(660	)		36,264		87,624		2,148		(80	)		89,692
Mortgage-backed securities		104,176		31		(4,222	)		99,985		61,750		766		(66	)		62,450
Corporate bonds		15,568		259		(218	)		15,609		15,701		497		-			16,198
Total available for sale securities		416,245		9,834		(11,928	)		414,151		385,781		16,795		(223	)		402,353
Held to maturity:
Obligations of states and political subdivisions		7,150		643		-			7,793		8,035		826		-			8,861
Total investment securities	$	423,395	$	10,477	$	(11,928	)	$	421,944	$	393,816	$	17,621	$	(223	)	$	411,214

At September 30, 2013 and December 31, 2012, investment securities carried at $273 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 September 30, 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.

	September 30, 2013
	Amortized		Estimated
	Cost		Fair Value
Securities available for sale:
Due in one year or less	$	18,003	$	18,252
Due from one to five years		123,574		129,476
Due from five to ten years		251,818		245,440
Due after ten years		22,850		20,983
Total securities available for sale		416,245		414,151
Securities held to maturity:
Due in one year or less		777		790
Due from one to five years		6,168		6,784
Due from five to ten years		205		219
Total securities held to maturity		7,150		7,793
Total investment securities	$	423,395	$	421,944

9

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

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013		2012			2013		2012
Proceeds	$	-	$	3,584		$	13,427	$	3,584
Gross realized gains	$	3	$	-		$	395	$	-
Gross realized losses		-		162			-		162
Net realized gains (losses)	$	3	$	(162	)	$	395	$	(162	)

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
September 30, 2013	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
Type of securities	Fair value		Losses		Fair value		Losses		Fair value		Losses
U.S. Government agency securities	$	102,510	$	6,828	$	-	$	-	$	102,510	$	6,828
Collateralized mortgage obligations		8,900		660		-		-		8,900		660
Mortgage-backed securities		94,848		4,143		4,764		79		99,612		4,222
Corporate bonds		8,672		218		-		-		8,672		218
Total	$	214,930	$	11,849	$	4,764	$	79	$	219,694	$	11,928

	Less than 12 months				12 months or longer				Total
December 31, 2012	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
Type of securities	Fair value		Losses		Fair value		Losses		Fair value		Losses
U.S. Government agency securities	$	28,958	$	77	$	-	$	-	$	28,958	$	77
Collateralized mortgage obligations		7,878		80		-		-		7,878		80
Mortgage-backed securities		14,098		66		-		-		14,098		66
Total	$	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 FASB Accounting Standards Codification (“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 September 30, 2013.

10

The Bank was a member of the Visa USA payment network and was issued Class B shares upon Visa, Inc.’s (“VISA”) initial public offering in March 2008.  The VISA Class B shares that the Company owns are transferable only under limited circumstances until they can be converted into shares of the publicly traded class of stock.  This cannot happen until the settlement of certain litigation, which is indemnified by VISA members.  Since its initial public offering, VISA has funded a litigation reserve based upon a change in the ratio for conversion of VISA Class B shares to VISA Class A shares.   At its discretion, Visa may continue to increase the conversion rate in connection with any settlements in excess of amounts then in escrow for that purpose and reduce the conversion rate to the extent that it adds any funds to the escrow in the future. Based on the existing transfer restriction and the uncertainty of the litigation the Company has recorded these shares at zero in the accompanying statement of condition.

On July 30, 2013, the Bank sold 50,000 VISA Class B shares at a gross pre-tax gain of approximately $3.8 million, which was recorded in non-interest income in the Company’s statement of operations in the third quarter of 2013.  In conjunction with the sale, the Company entered into a swap contract with the purchaser that requires a payment to the counterparty in the event that VISA makes subsequent revisions to the conversion ratio for its Class B shares.  The Company also recorded a contingent liability of $460 thousand, representing the Company’s estimate of its potential future exposure to the counterparty for settlement of the VISA litigation. This exposure represents cash payments required as the result of potential future conversion rate changes.  The Company recorded an operating expense in the third quarter of 2013 in connection with this liability. Management believes that the Company’s estimated exposure to the VISA indemnification is adequate based on current information; however, future developments in the litigation disclosed by VISA could require potentially significant changes to this estimate.  The carrying costs of required payments to the counterparty, calculated by reference to the market price of the Class A common shares at a fixed rate of interest, are expensed as incurred. These payments approximate $25 thousand per quarter; the pro-rata amount of $13 thousand was recorded in the quarter ended September 30, 2013.

The Company has pledged a U.S. Government agency security held in its available for sale portfolio, with a market value of approximately $1.4 million at September 30, 2013, as collateral for this transaction.

At September 30, 2013 the Company continued to own 88,638 VISA Class B shares subsequent to the sale described above.  These shares remain restricted because of the continuing uncertainty of the litigation pending against Visa, Inc.  Accordingly, the Company continues to record its VISA Class B shares at zero pending the outcome of the litigation. To the extent that the Company continues to own VISA Class B shares in the future, the Company expects to record the fair value of those shares upon expiration of the foregoing restriction. (See also Subsequent Event footnote contained herein.)

4. LOANS

At September 30, 2013 and December 31, 2012, net loans disaggregated by class consisted of the following (in thousands):

	September 30, 2013			December 31, 2012
Commercial and industrial	$	172,386		$	168,709
Commercial real estate		448,728			360,010
Multifamily		136,983			9,261
Real estate construction		8,134			15,469
Residential mortgages		162,658			146,575
Home equity		59,100			66,468
Consumer		11,340			14,288
Gross loans		999,329			780,780
Allowance for loan losses		(17,619	)		(17,781	)
Net loans at end of period	$	981,710		$	762,999

11

For the three and nine months ended September 30, 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			Multifamily			Real estate construction			Residential mortgages			Home equity			Consumer			Unallocated		Total
Three months ended September 30, 2013
Balance at beginning of period	$	4,778		$	6,701		$	529		$	278		$	2,341		$	1,059		$	247		$	1,360	$	17,293
Charge-offs		(60	)		(70	)		-			-			-			-			(11	)		-		(141	)
Recoveries		390			12			-			-			4			5			56			-		467
(Credit) provision for loan losses		(1,870	)		485			903			(4	)		218			17			(59	)		310		-
Balance at end of period	$	3,238		$	7,128		$	1,432		$	274		$	2,563		$	1,081		$	233		$	1,670	$	17,619
Three months ended September 30, 2012
Balance at beginning of period	$	15,082		$	8,088		$	93		$	163		$	1,634		$	2,008		$	176		$	1,983	$	29,227
Charge-offs		(6,689	)		(8,102	)		-			(2,123	)		(2,885	)		(1,360	)		(179	)		-		(21,338	)
Recoveries		462			-			-			260			112			246			52			-		1,132
(Credit) provision for loan losses		(327	)		6,752			(41	)		1,762			2,289			449			121			995		12,000
Balance at end of period	$	8,528		$	6,738		$	52		$	62		$	1,150		$	1,343		$	170		$	2,978	$	21,021

	Commercial and industrial			Commercial real estate			Multifamily			Real estate construction			Residential mortgages			Home equity			Consumer			Unallocated			Total
Nine months ended September 30, 2013
Balance at beginning of period	$	6,181		$	5,999		$	150		$	141		$	1,576		$	907		$	189		$	2,638		$	17,781
Charge-offs		(1,687	)		(70	)		-			-			(74	)		-			(133	)		-			(1,964	)
Recoveries		1,600			85			-			-			5			7			105			-			1,802
(Credit) provision for loan losses		(2,856	)		1,114			1,282			133			1,056			167			72			(968	)		-
Balance at end of period	$	3,238		$	7,128		$	1,432		$	274		$	2,563		$	1,081		$	233		$	1,670		$	17,619
Nine months ended September 30, 2012
Balance at beginning of period	$	25,047		$	10,470		$	559		$	623		$	2,401		$	512		$	313		$	33		$	39,958
Charge-offs		(7,816	)		(15,794	)		-			(2,123	)		(3,473	)		(1,953	)		(261	)		-			(31,420	)
Recoveries		2,086			-			-			340			114			246			97			-			2,883
(Credit) provision for loan losses		(10,789	)		12,062			(507	)		1,222			2,108			2,538			21			2,945			9,600
Balance at end of period	$	8,528		$	6,738		$	52		$	62		$	1,150		$	1,343		$	170		$	2,978		$	21,021

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 uncollectability 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.

12

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 may be 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, multifamily, real estate construction, residential mortgages, home equity and consumer loans. For performing loans, an estimate of adequacy of the general component of the allowance 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 September 30, 2013 as compared to a provision of $12.0 million for the three months ended September 30, 2012. The $12.0 million provision for loan losses during the third quarter of 2012 resulted from workout and asset disposition activities undertaken in that period.

For the three months ended September 30, 2013, the ending balance of the Company’s allowance for loan losses increased by $326 thousand when compared to June 30, 2013. During the third quarter of 2013, the Company increased its allowance for loan losses allocated to multifamily loans and commercial real estate loans (“CRE”) by $903 thousand and $427 thousand, respectively, while reducing the amount allocated to commercial and industrial loans (“C&I”) by $1.5 million.

The increases in the allowance for loan losses allocated to multifamily and CRE loans were primarily due to increases in the balances of unimpaired pass rated multifamily and CRE loans of $79 million and $34 million, respectively, versus June 30, 2013.

The decrease in the allowance for loan losses allocated to C&I loans during the third quarter of 2013 reflected a 0.84% reduction in the ASC 450-20 historical loss factors rate on unimpaired pass rated C&I loans, a $5 million decrease in the balance of unimpaired pass rated C&I loans and a decrease of $34 thousand in specific reserves for C&I loans as computed under ASC 310-10 at September 30, 2013 as compared to June 30, 2013.

Effective with the March 31, 2013 calculation, the ASC 450-20 loss factors rates incorporate 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 resulted from the Company’s effort to improve the granularity of its individual loan segment charge-off history. 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 by individual loan segment.

13

At September 30, 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 September 30, 2013 and December 31, 2012 disaggregated by class and impairment methodology (in thousands).

September 30, 2013	Commercial and industrial		Commercial real estate		Multifamily		Real estate construction		Residential mortgages		Home equity		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	343	$	-	$	-	$	-	$	761	$	395	$	75	$	-	$	1,574
Ending balance: collectively evaluated for impairment		2,895		7,128		1,432		274		1,802		686		158		1,670		16,045
Ending balance	$	3,238	$	7,128	$	1,432	$	274	$	2,563	$	1,081	$	233	$	1,670	$	17,619
Loan balances:
Ending balance: individually evaluated for impairment	$	13,637	$	13,719	$	-	$	-	$	5,082	$	1,399	$	281	$	-	$	34,118
Ending balance: collectively evaluated for impairment		158,749		435,009		136,983		8,134		157,576		57,701		11,059		-		965,211
Ending balance	$	172,386	$	448,728	$	136,983	$	8,134	$	162,658	$	59,100	$	11,340	$	-	$	999,329

December 31, 2012	Commercial and industrial		Commercial real estate		Multifamily		Real estate construction		Residential mortgages		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		5,977		150		140		1,001		821		189		2,638		16,757
Ending balance	$	6,181	$	5,999	$	150	$	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		350,567		9,261		13,508		141,915		65,966		14,267		-		753,824
Ending balance	$	168,709	$	360,010	$	9,261	$	15,469	$	146,575	$	66,468	$	14,288	$	-	$	780,780

14

The following table presents certain information pertaining to the Company’s impaired loans disaggregated by class at September 30, 2013 and December 31, 2012 (in thousands):

	September 30, 2013						December 31, 2012
	Unpaid Principal Balance		Recorded Balance		Allowance Allocated		Unpaid Principal Balance		Recorded Balance		Allowance  Allocated
With no allowance recorded:
Commercial and industrial	$	13,999	$	12,795	$	-	$	7,913	$	7,492	$	-
Commercial real estate		14,255		13,719		-		8,859		7,282		-
Real estate construction		-		-		-		1,334		1,305		-
Residential mortgages		2,113		1,984		-		1,918		1,788		-
Home equity		821		821		-		418		416		-
Consumer		19		8		-		21		21		-
Subtotal		31,207		29,327		-		20,463		18,304		-
With an allowance recorded:
Commercial and industrial		842		842		343		2,884		2,877		340
Commercial real estate		-		-		-		2,161		2,161		22
Real estate construction		-		-		-		656		656		1
Residential mortgages		3,223		3,098		761		3,015		2,872		575
Home equity		578		578		395		86		86		86
Consumer		276		273		75		-		-		-
Subtotal		4,919		4,791		1,574		8,802		8,652		1,024
Total	$	36,126	$	34,118	$	1,574	$	29,265	$	26,956	$	1,024

Shown below is additional information pertaining to the Company’s impaired loans disaggregated by class for the three and nine months ended September 30, 2013 and 2012 (in thousands):

	Three Months Ended September 30, 2013						Three Months Ended September 30, 2012
	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	$	12,695	$	47	$	-	$	19,946	$	58	$	-
Commercial real estate		8,406		224		-		24,146		209		-
Real estate construction		-		80		-		13,166		72		-
Residential mortgages		5,202		73		-		4,973		42		-
Home equity		1,174		4		-		2,360		4		-
Consumer		183		-		-		352		-		-
Total	$	27,660	$	428	$	-	$	64,943	$	385	$	-

	Nine Months Ended September 30, 2013						Nine Months Ended September 30, 2012
	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	$	12,799	$	279	$	-	$	27,660	$	373	$	-
Commercial real estate		8,635		369		-		48,318		468		-
Real estate construction		683		94		-		16,809		410		-
Residential mortgages		5,098		167		-		7,202		127		-
Home equity		1,092		8		-		3,396		4		-
Consumer		192		8		-		546		-		-
Total	$	28,499	$	925	$	-	$	103,931	$	1,382	$	-

15

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 $910 thousand and $800 thousand of specific reserves to customers whose loan terms have been modified as TDRs as of September 30, 2013 and December 31, 2012, respectively. These loans involved the restructuring of terms to allow customers to mitigate the risk of default 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 $43 thousand and $35 thousand were committed to be advanced in connection with TDRs as of September 30, 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 interest. 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 (dollars in thousands) present certain information regarding outstanding TDRs at September 30, 2013 and December 31, 2012, TDRs executed during the three and nine months ended September 30, 2013 and 2012 and TDRs with payment defaults of 90 days or more within twelve months of restructuring during the nine months ended September 30, 2013 and 2012. There were no such payment defaults during the three months ended September 30, 2013 and 2012.

	September 30, 2013				December 31, 2012
Total TDRs	Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance
Commercial and industrial		42	$	5,934		41	$	6,468
Commercial real estate		7		4,933		9		6,238
Residential mortgages		17		3,922		15		3,587
Consumer		4		161		5		311
		70	$	14,950		70	$	16,604

	Three months ended September 30, 2013						Three months ended September 30, 2012
			Pre-Modification		Post-Modification				Pre-Modification		Post-Modification
	Number		Outstanding		Outstanding		Number		Outstanding		Outstanding
	of		Recorded		Recorded		of		Recorded		Recorded
New TDRs	Loans		Balance		Balance		Loans		Balance		Balance
Commercial and industrial		1	$	228	$	228		3	$	815	$	815
Residential mortgages		1		19		19		-		-		-
		2	$	247	$	247		3	$	815	$	815

	Nine months ended September 30, 2013						Nine months ended September 30, 2012
			Pre-Modification		Post-Modification				Pre-Modification		Post-Modification
	Number		Outstanding		Outstanding		Number		Outstanding		Outstanding
	of		Recorded		Recorded		of		Recorded		Recorded
New TDRs	Loans		Balance		Balance		Loans		Balance		Balance
Commercial and industrial		5	$	1,120	$	1,120		13	$	5,920	$	5,920
Residential mortgages		4		924		924		1		81		81
Consumer		1		17		17		1		49		49
		10	$	2,061	$	2,061		15	$	6,050	$	6,050

16

	Nine months ended September 30, 2013				Nine months ended September 30, 2012
			Outstanding				Outstanding
	Number		Recorded		Number		Recorded
Defaulted TDRs	of Loans		Balance		of Loans		Balance
Commercial and industrial		-	$	-		2	$	1,200
		-	$	-		2	$	1,200

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.

Information regarding modifications and renewals executed during the three and nine months ended September 30, 2013 and 2012 that are not considered TDRs is shown below (dollars in thousands):

	Three months ended September 30, 2013				Three months ended September 30, 2012
			Outstanding				Outstanding
	Number		Recorded		Number		Recorded
Non-TDR Modifications	of Loans		Balance		of Loans		Balance
Commercial and industrial		11	$	2,240		2	$	1,325
Commercial real estate		11		6,367		6		5,008
Multifamily		1		410		-		-
		23	$	9,017		8	$	6,333

	Nine months ended September 30, 2013				Nine months ended September 30, 2012
			Outstanding				Outstanding
	Number		Recorded		Number		Recorded
Non-TDR Modifications	of Loans		Balance		of Loans		Balance
Commercial and industrial		19	$	6,741		8	$	3,863
Commercial real estate		31		32,485		15		15,123
Multifamily		1		410		-		-
		51	$	39,636		23	$	18,986

The following is a summary of information pertaining to non-performing assets at September 30, 2013 and December 31, 2012 (in thousands):

	September 30, 2013		December 31, 2012
Non-accrual loans	$	22,577	$	16,435
Non-accrual loans held-for-sale		-		907
Loans 90 days past due and still accruing		-		-
OREO		-		1,572
Total non-performing assets	$	22,577	$	18,914
TDRs accruing interest	$	10,024	$	9,954
TDRs non-accruing	$	4,926	$	6,650

17

The following table summarizes non-accrual loans by loan class at September 30, 2013 and December 31, 2012 (dollars in thousands):

	September 30, 2013										December 31, 2012
	Non- accrual loans		% of Total			Total Loans		% of Total Loans			Non- accrual loans		% of Total			Total Loans		% of Total Loans
Commercial and industrial	$	9,947		44.1	%	$	172,386		1.0	%	$	6,529		39.8	%	$	168,709		0.8	%
Commercial real estate		9,505		42.1			448,728		1.0			5,192		31.6			360,010		0.7
Multifamily		-		-			136,983		-			-		-			9,261		-
Real estate construction		-		-			8,134		-			1,961		11.9			15,469		0.3
Residential mortgages		1,929		8.5			162,658		0.2			2,466		15.0			146,575		0.3
Home equity		1,063		4.7			59,100		0.1			266		1.6			66,468		-
Consumer		133		0.6			11,340		-			21		0.1			14,288		-
Total	$	22,577		100.0	%	$	999,329		2.3	%	$	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 $208 thousand and $237 thousand would have been recorded on non-accrual loans during the three months ended September 30, 2013 and 2012, respectively, and $894 thousand and $1.3 million during the nine months ended September 30, 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 September 30, 2013 and December 31, 2012 (in thousands):

	September 30, 2013				December 31, 2012
	Principal Balance		Collateral Value		Principal Balance		Collateral Value
Commercial and industrial (1)	$	9,947	$	6,000	$	6,529	$	4,400
Commercial real estate		9,505		17,785		5,192		12,675
Real estate construction		-		-		1,961		3,661
Residential mortgages		1,929		4,347		2,466		5,141
Home equity		1,063		5,100		266		849
Consumer		133		-		21		-
Total	$	22,577	$	33,232	$	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 September 30, 2013 and December 31, 2012, past due loans disaggregated by class were as follows (in thousands):

	Past Due
September 30, 2013	30 - 59 days			60 - 89 days			90 days and over			Total			Current			Total
Commercial and industrial	$	86		$	-		$	9,947		$	10,033		$	162,353		$	172,386
Commercial real estate		-			639			9,505			10,144			438,584			448,728
Multifamily		-			-			-			-			136,983			136,983
Real estate construction		-			-			-			-			8,134			8,134
Residential mortgages		1,465			761			1,929			4,155			158,503			162,658
Home equity		1,527			143			1,063			2,733			56,367			59,100
Consumer		18			-			133			151			11,189			11,340
Total	$	3,096		$	1,543		$	22,577		$	27,216		$	972,113		$	999,329
% of Total Loans		0.3	%		0.1	%		2.3	%		2.7	%		97.3	%		100.0	%

18

	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			353,344			360,010
Multifamily		-			-			-			-			9,261			9,261
Real estate construction		1,382			-			1,961			3,343			12,126			15,469
Residential mortgages		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
% of Total Loans		1.6	%		0.2	%		2.1	%		3.9	%		96.1	%		100.0	%

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.

19

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 September 30, 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):

September 30, 2013	Commercial and  industrial		Commercial real estate		Multifamily		Real estate construction		Residential mortgages		Home equity		Consumer		Total		% of Total
Grade:
Pass	$	150,149	$	413,226	$	136,983	$	8,134	$	157,634	$	57,951	$	11,054	$	935,131		93.6	%
Special mention		2,707		8,988		-		-		-		-		-		11,695		1.2
Substandard		19,530		26,514		-		-		5,024		1,149		286		52,503		5.2
Total	$	172,386	$	448,728	$	136,983	$	8,134	$	162,658	$	59,100	$	11,340	$	999,329		100.0	%

20

December 31, 2012	Commercial and industrial		Commercial real estate		Multifamily		Real estate construction		Residential  mortgages		Home equity		Consumer		Total		% of Total
Grade:
Pass	$	143,804	$	301,862	$	9,261	$	4,790	$	141,915	$	65,966	$	14,267	$	681,865		87.3	%
Special mention		5,995		38,670		-		-		-		-		-		44,665		5.7
Substandard		18,910		19,478		-		10,679		4,660		502		21		54,250		7.0
Total	$	168,709	$	360,010	$	9,261	$	15,469	$	146,575	$	66,468	$	14,288	$	780,780		100.0	%

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. EMPLOYEE BENEFITS

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 (income) expense for the three and nine months ended September 30, 2013 and 2012 (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Service cost	$	-		$	603		$	-		$	1,809
Interest cost		499			555			1,495			1,664
Expected return on plan assets		(577	)		(527	)		(1,727	)		(1,581	)
Net amortization		62			406			184			1,220
Net periodic benefit (income) expense	$	(16	)	$	1,037		$	(48	)	$	3,112

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

Post-Retirement Benefits other than Pension - The Company formerly provided life insurance benefits to employees meeting eligibility requirements. Employees hired after December 31, 1997 were not eligible for retiree life insurance. No other welfare benefits are provided. In the second quarter of 2013, the Company terminated all post-retirement life insurance benefits and recorded a non-recurring gain of $1.7 million as a credit to employee compensation and benefits expense in the Company’s consolidated statements of operations.

21

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 248,000 had been granted as of September 30, 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 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. 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. No options were granted in 2010. Options granted prior to 2010 vest after one 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 September 30, 2013, there were 6,000 SARs outstanding related to options granted before 2011. The SARs had no intrinsic value at September 30, 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.

The total intrinsic value of options exercised for the nine months ended September 30, 2013 was $15 thousand. The total cash received from such option exercises was $92 thousand, excluding the tax benefit realized. In exercising those options, 6,667 new shares of the Company’s common stock were issued.

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		98,000		$	16.99
Exercised		(6,667	)	$	13.44
Forfeited or expired		(25,333	)	$	15.50
Outstanding, September 30, 2013		277,500		$	16.01

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

Black-Scholes Assumptions for Options Granted During the Nine Months Ended September 30, 2013:
Risk-free interest rate	1.19	%
Expected dividend yield	-
Expected life in years	10
Expected volatility	43.00	%

22

The following summarizes shares subject to purchase from stock options outstanding and exercisable as of September 30, 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
$	10.00 - $14.00		140,000	8.4 years	$	12.01		30,002	8.5 years	$	12.68
$	14.01 - $20.00		108,000	9.7 years	$	16.80		3,334	9.0 years	$	14.97
$	20.01 - $30.00		5,000	5.3 years	$	28.30		5,000	5.3 years	$	28.30
$	30.01 - $40.00		24,500	2.6 years	$	32.87		24,500	2.6 years	$	32.87
			277,500	8.3 years	$	16.01		62,836	6.0 years	$	21.92

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 $367 thousand and $304 thousand for the nine months ended September 30, 2013 and 2012, respectively. The remaining unrecognized compensation cost of approximately $1.0 million at September 30, 2013 will be expensed over the remaining weighted average vesting period of approximately 2.6 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 September 30, 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 applied 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 $15 million and $24 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 allowance 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 years 2032-2033. It is anticipated that the Federal carryforward will be utilized prior to its expiration based on the Company’s future years’ projected earnings.

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 September 30, 2013, that the Company and the Bank met all such capital adequacy requirements to which it is subject.

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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
September 30, 2013
Total capital to risk-weighted assets	$	176,252		15.10	%	$	93,382		8.00	%	$	116,728		10.00	%
Tier 1 capital to risk-weighted assets		161,620		13.85	%		46,691		4.00	%		70,037		6.00	%
Tier 1 capital to adjusted average assets (leverage)		161,620		9.59	%		67,418		4.00	%		84,273		5.00	%
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 reduction in the Bank’s capital ratios at September 30, 2013 versus December 31, 2012 resulted from an increase in total assets coupled with a change in the Bank’s mix of assets from 0% risk-weighted interest-bearing deposits due from banks to loans, principally at a 100% risk-weighting.

The Company’s Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios were 9.66%, 13.94% and 15.19%, respectively, at September 30, 2013.

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 September 30, 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.

The Office of the Comptroller of the Currency (“OCC”) approved the Final Rule on Regulatory Capital, revising regulatory capital rules applicable to national banks, on July 9, 2013 implementing Basel III. Most banking organizations are required to apply the new capital rules on January 1, 2015. The final rule sets a new common equity tier 1 requirement and higher minimum tier 1 requirements for all banking organizations. It also places limits on capital distributions and certain discretionary bonus payments if a banking organization does not maintain a buffer of common equity tier 1 capital above minimum capital requirements. The rule revises the Prompt Corrective Action Framework to incorporate the new regulatory capital minimums. It also enhances risk sensitivity and addresses weaknesses identified over recent years with the measure of risk-weighted assets, including through new measures of creditworthiness to replace references to credit ratings, consistent with section 939A of the Dodd-Frank Act. Based on our capital levels and balance sheet composition at September 30, 2013, we believe implementation of the new rule will not have a material impact on our capital needs.

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.

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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	September 30, 2013				December 31, 2012
	Fair Value	Carrying		Estimated		Carrying		Estimated
	Heirarchy	Amount		Fair Value		Amount		Fair Value
Cash and due from banks	Level 1	$	209,636	$	209,636	$	384,656	$	384,656
Cash equivalents	Level 2		1,000		1,000		1,150		1,150
Interest-bearing time deposits in other banks	Level 2		10,000		10,000		-		-
Federal Reserve Bank, Federal Home Loan Bank and other stock	N/A		2,916		N/A		3,043		N/A
Investment securities held to maturity	Level 2		7,150		7,793		8,035		8,861
Investment securities available for sale	Level 2		414,151		414,151		402,353		402,353
Loans held-for-sale	Level 3		613		613		907		907
Loans, net of allowance	Level 2, 3 (1)		981,710		992,221		762,999		787,597
Bank owned life insurance	Level 3		38,399		38,399		-		-
Accrued interest and loan fees receivable	Level 2		5,966		5,966		4,883		4,883
Non-maturity deposits	Level 2		1,300,357		1,300,357		1,187,383		1,187,383
Time deposits	Level 2		236,893		237,878		243,731		245,595
Accrued interest payable	Level 2		197		197		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.

For cash and due from banks, cash equivalents, interest-bearing time deposits in other banks, bank owned life insurance, accrued interest and loan fees receivable, non-maturity deposits and accrued interest payable, the carrying amount is a reasonable estimate of fair value. Time deposits 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.

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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 parties.

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.

During the third quarter of 2013, the Company entered into a swap agreement with the purchaser of its VISA Class B shares. The valuation represents the internally developed estimate of the exposure based upon probability-weighted potential VISA litigation losses.

Assets and liabilities 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:	September 30, 2013		(Level 2)		(Level 3)
U.S. Government agency securities	$	102,510	$	102,510	$	-
Corporate bonds		15,609		15,609		-
Collateralized mortgage obligations		36,264		36,264		-
Mortgage-backed securities		99,985		99,985		-
Obligations of states and political subdivisions		159,783		159,783		-
Loans held-for-sale		613		-		613
Mortgage servicing rights		2,169		-		2,169
Total	$	416,933	$	414,151	$	2,782
Liabilities:
Derivatives	$	460	$	-	$	460
Total	$	460	$	-	$	460

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			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):

Assets:	September 30, 2013		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Impaired loans	$	20,117	$	20,117
Total	$	20,117	$	20,117
Assets:	December 31, 2012		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Impaired loans	$	9,390	$	9,390
OREO		1,572		1,572
Total	$	10,962	$	10,962

10. LEGAL PROCEEDINGS

On September 25, 2013, the Supreme Court of the State of New York for the County of Suffolk dismissed with prejudice the shareholder derivative action, Susan Forbush v. Edgar F. Goodale, et al., No. 33538/11, filed in the Supreme Court on October 28, 2011, and approved the settlement among the parties to that action along with another shareholder of the Company who had made a litigation demand on the Company. On October 4, 2013, as requested by the parties in accordance with their settlement agreement, the U.S. District Court for the Eastern District of New York dismissed with prejudice the shareholder derivative action, Robert J. Levy v. J. Gordon Huszagh, et al., No. 11 Civ. 3321 (JS), filed in the District Court on July 11, 2011. These derivative actions alleged that the 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.  The Company denied and continues to deny each and all of the allegations alleged by the plaintiffs in the actions. The terms of the settlement require the Company to implement various corporate governance enhancements, and, as part of the settlement, plaintiff’s counsel was awarded fees and expenses in the amount of $600,000 which was paid by the Company’s insurer.

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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 (the “Class Members”). 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 an order preliminarily approving the proposed settlement, directing dissemination and publication of notice of the proposed settlement to Class Members, and scheduling a hearing on whether the settlement should be finally approved by the court. On July 18, 2013, the court granted the motion. On August 1, 2013, in accordance with the parties’ settlement agreement and the court’s preliminary approval order, the Company’s insurer paid the sum of $2.8 million to an escrow account for the benefit of Class Members. A final settlement approval hearing is scheduled for November 13, 2013. Management does not believe that the ultimate resolution of this matter will have a material adverse impact on the consolidated financial statements.

On August 12, 2013, the Company was informed that the SEC closed its previously disclosed investigation of the Company. No action was taken against the Company. The SEC’s New York regional office had formally requested certain loan files, other records and information from the Company but had not asserted that any federal securities law violation occurred.

The Company assesses its liabilities and contingencies in connection with legal proceedings on an ongoing basis. For those matters where it is probable that the Company will incur losses and the amounts of the losses can be reasonably estimated, the Company records an expense and corresponding liability in its consolidated financial statements. We have concluded that an amount for such a loss contingency is not to be accrued at this time.

11. SUBSEQUENT EVENT

On October 16, 2013, the Bank sold 40,000 Visa Class B shares at a gross pre-tax gain of approximately $2.7 million, which will be recorded in non-interest income in the Company’s statement of operations in the fourth quarter of 2013. The Company will also record its current estimate of the related liability of approximately $374 thousand arising from the sale of these shares as an operating expense in the fourth quarter as it retains the risk of future additions to the Visa, Inc. litigation reserve.

The Company continues to own 48,638 Visa Class B shares subsequent to the sale described above.  These shares remain restricted because of the continuing uncertainty of the litigation pending against Visa, Inc.  Accordingly, the Company continues to record its Visa Class B shares at zero pending the outcome of the litigation. To the extent that the Company continues to own Visa Class B shares in the future, the Company expects to record the fair value of those shares upon expiration of the foregoing restriction.

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 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 Form 10-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.

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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 28 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 manufacturers, wholesalers, distributors, developers/contractors and retailers, and agricultural loans. 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. As part of our strategy to move westward, an additional loan production office will open in early November in Garden City to serve the major business markets in central and western Long Island. Seasoned banking professionals have joined the Company to augment both interest and fee income through the origination of commercial and industrial loans, the generation of high quality multifamily 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.

At September 30, 2013, the Company, on a consolidated basis, had total assets of $1.7 billion, total deposits of $1.5 billion and stockholders’ equity of $162 million. The Company recorded net income of $3.9 million, or $0.34 per diluted common share, for the third quarter of 2013, compared to a net loss of $9.2 million, or $0.94 per diluted common share, for the third quarter of 2012.The improvement in third quarter 2013 earnings versus 2012 resulted from several factors, most notably a $12.0 million reduction in the provision for loan losses in 2013, a $4.7 million increase in non-interest income and a $2.1 million reduction in total operating expenses. Third quarter 2013 earnings included the previously disclosed $3.4 million pre-tax net gain on the sale of Visa Class B shares executed in July and one-time costs of $596 thousand incurred in closing two branch offices in 2013. Partially offsetting these positive factors was a $182 thousand reduction in net interest income in the third quarter of 2013 due to a 27 basis point narrowing of the Company’s net interest margin to 3.82% in 2013 from 4.09% a year ago. 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.

The Company’s return on average assets and return on average common stockholders’ equity were 0.92% and 9.72%, respectively, in the third quarter of 2013 versus (2.34%) and (25.40%), respectively, in the third quarter of 2012.

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Financial Performance Summary

As of or for the quarters and nine months ended September 30, 2013 and 2012

(dollars in thousands, except per share data)

							Over/									Over/
	Quarters ended September 30,						(under)			Nine months ended September 30,						(under)
	2013			2012			2012			2013			2012			2012
Revenue (1)	$	20,559		$	16,035			28.2	%	$	53,829		$	49,777			8.1	%
Operating expenses (2)	$	15,090		$	17,171			(12.1	%)	$	41,583		$	45,915			(9.4	%)
Provision for loan losses	$	-		$	12,000			(100.0	%)	$	-		$	9,600			(100.0	%)
Net income (loss)	$	3,912		$	(9,161	)		N/M	(3)	$	9,390		$	(3,793	)		N/M	(3)
Net income (loss) per common share - diluted	$	0.34		$	(0.94	)		N/M	(3)	$	0.81		$	(0.39	)		N/M	(3)
Return on average assets		0.92	%		(2.34	%)		325	bp		0.76	%		(0.33	%)		109	bp
Return on average stockholders' equity		9.72	%		(25.40	%)		3,512	bp		7.70	%		(3.65	%)		1,135	bp
Tier 1 leverage ratio		9.66	%		9.74	%		(8	)bp		9.66	%		9.74	%		(8	)bp
Tier 1 risk-based capital ratio		13.94	%		16.90	%		(296	)bp		13.94	%		16.90	%		(296	)bp
Total risk-based capital ratio		15.19	%		18.17	%		(298	)bp		15.19	%		18.17	%		(298	)bp
Tangible common equity ratio (non-GAAP)		9.21	%		9.75	%		(54	)bp		9.21	%		9.75	%		(54	)bp

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

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

(2) Results for the 2013 nine-month period are net of a $1,659 non-recurring gain arising from the termination of post-retirement life insurance

benefits during the second quarter of 2013.

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

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 $1.3 billion at September 30, 2013, representing 85% of total deposits at that date. Demand deposits totaled $650 million at September 30, 2013 and represented 42% 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 19 basis points during the third quarter of 2013.

The Company experienced sequential quarter increase in the total loan portfolio of $104 million, from $895 million at June 30, 2013 to $999 million at September 30, 2013, an 11.6% quarterly growth rate. The geographic and product diversification strategies implemented in our lending businesses are working well. Each of our lending businesses, commercial, multifamily and residential, are contributing to this accelerating momentum. The Company is increasing market share by protecting our eastern Suffolk lending franchise while simultaneously expanding west.

As part of the Bank’s desire to diversify its portfolio on both a product and geographic basis, its initiative aimed at the development of a multifamily mortgage portfolio has meant that the Bank now has exposure to a favorable geographic area that had previously been a minimal segment of the portfolio. This effort is primarily concentrated in the five boroughs of New York City and targets buildings with stabilized rent flows. It has been well-established that the incidence of loss in multifamily loan transactions is lower than almost all other loan categories as their performance over time has shown limited defaults, even during the worst period of the recent recession. The property value for these buildings is directly attributable to the cash flow from rents and the rate of return investors need on their invested capital. Rental rates are a function of demand for apartments and the vacancy rates in New York City (where the majority of the Bank’s assets are located) are at historical lows. Average rental rates for an apartment are above $3,000/month for the first time ever. New apartments are coming to market but are being absorbed rapidly.

The Bank has dedicated credit analysts/underwriters and a portfolio manager for the multifamily product line that have extensive experience in this type of lending. The portfolio of multifamily loans continues to perform satisfactorily with no delinquencies reported and risk ratings solidly in the pass range.

On the expense side, we are working diligently to balance the increased investments needed to grow our lending businesses with offsetting operating expense reductions in other areas, and believe we will see continued improvement as we move forward. We are currently studying our existing branch network for cost saving opportunities. As a result of this effort, the previously announced closings of our branches in Middle Island and Water Mill became effective on October 4. While third quarter results reflect total one-time charges of $596 thousand to close these two branches, the aggregate permanent operating expense savings resulting from these actions will be over $800 thousand per year. Further, after carefully implementing a detailed customer retention plan, we are very pleased to report that preliminary deposit retention rates for these two closed branches is in excess of 95%. We continue to analyze our branch network and each of our lines of business to identify further opportunities for cost savings, which will be an ongoing focus of our management team across our entire Company.

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Notwithstanding the strong loan growth described above, we still maintained a relatively large cash position at the end of the third quarter of $157 million in interest-bearing deposits with correspondent banks, or 9% of total assets. Even with this cash position, our net interest margin during the quarter was 3.82%, as we maintained an extraordinarily low cost of funds of 19 basis points. As we continue to redeploy our cash into high quality loans and other interest-earning assets, we believe we have a unique opportunity to improve both our margin and our non-interest income 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.

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, multifamily, real estate construction, residential mortgages, 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 impaired 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.

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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 $1.7 billion at September 30, 2013. When compared to December 31, 2012, total assets increased by $103 million. This change largely reflects increases in loans, bank owned life insurance, investment securities and interest-bearing time deposits in other banks of $218 million, $38 million, $11 million and $10 million, respectively, partially offset by a decline in cash and cash equivalents of $175 million as we continue our redeployment of lower-yielding overnight interest-bearing deposits into higher yielding assets. Total loans were $999 million at September 30, 2013 as compared to $781 million at December 31, 2012. Total investment securities increased to $421 million at September 30, 2013 from $410 million at December 31, 2012.

The increase in the loan portfolio largely reflects growth of multifamily and commercial real estate loans of $128 million and $89 million, respectively, during the first nine months of 2013. The increase in the investment portfolio largely reflects purchases of U.S. Government agency securities and mortgage-backed securities of U.S. Government-sponsored enterprises of $62 million and $44 million, respectively, during the first nine months of 2013. These were partially offset by sales and principal paydowns of CMOs totaling $55 million and calls of U.S. Government agency securities of $18 million during the same 2013 period. Higher interest rates in 2013 negatively impacted the market value of the Company’s available for sale investment portfolio by approximately $19 million at September 30, 2013 when compared to December 31, 2012.

At September 30, 2013, total deposits were $1.5 billion, an increase of $106 million when compared to December 31, 2012. This increase was primarily due to growth in saving, N.O.W. and money market deposits of $79 million coupled with higher demand deposit balances of $34 million. Core deposit balances, which consist of demand, saving, N.O.W. and money market deposits, represented 85% and 83% of total deposits at September 30, 2013 and December 31, 2012, respectively. Demand deposit balances represented 42% of total deposits at September 30, 2013 versus 43% at December 31, 2012. The Company had no borrowed funds outstanding at either September 30, 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 $561 million at September 30, 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.

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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 September 30, 2013, total deposits were $1.5 billion, an increase of $106 million when compared to December 31, 2012. Of the total time deposits at September 30, 2013, $194 million are scheduled to mature within the next 12 months. Based on historical experience, the Company expects to be able to replace a substantial portion of those maturing deposits with comparable deposit products. At September 30, 2013 and December 31, 2012, there were no borrowings outstanding. For the nine months ended September 30, 2013 and 2012, proceeds from sales and maturities of securities available for sale totaled $35 million and $36 million, respectively.

The Company’s primary uses of funds are for the origination of loans and the purchase of investment securities. For the nine months ended September 30, 2013, the Company had net loan originations for portfolio of $223 million compared to net loan repayments of $120 million for the same period in 2012. The Company purchased investment securities totaling $116 million and $94 million during the nine months ended September 30, 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 $162 million at September 30, 2013 and $164 million at December 31, 2012, the decrease primarily reflecting a $12 million decrease in accumulated other comprehensive income, net of tax, resulting from the negative impact of higher interest rates in 2013 on the value of the Company’s available for sale investment portfolio. This was partially offset by net income recorded during 2013.

The Company’s tangible common equity ratio was 9.21% at September 30, 2013 compared to 9.96% at December 31, 2012 and 9.75% at September 30, 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 September 30, 2013 (in thousands):

Total stockholders' equity	$	161,670
Less: intangible assets		(2,983	)
Tangible common equity	$	158,687
Total assets	$	1,725,062
Less: intangible assets		(2,983	)
Tangible assets	$	1,722,079

The Company’s Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios were 9.66%, 13.94% and 15.19%, respectively, at September 30, 2013. The Company’s capital ratios exceeded all regulatory requirements at September 30, 2013.

The Bank’s Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios were 9.59%, 13.85% and 15.10%, respectively, at September 30, 2013. Each of these ratios exceeds the regulatory guidelines for a “well capitalized” institution, the highest regulatory capital category.

The Company did not repurchase any shares of its common stock during the first nine months 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.

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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 September 30, 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 $139 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 September 30, 2013 and December 31, 2012, letters of credit outstanding were approximately $18 million and $19 million, respectively.

The Company has recorded a liability of $255 thousand for unfunded commitments at September 30, 2013.

Material Changes in Results of Operations – Comparison of the Quarters Ended September 30, 2013 and 2012 - The Company recorded net income of $3.9 million during the third quarter of 2013 versus a net loss of $9.2 million in the comparable 2012 period. The improvement in 2013 net income resulted primarily from a $12.0 million reduction in the provision for loan losses in 2013, a $4.7 million increase in non-interest income and a $2.1 million reduction in total operating expenses in the third quarter of 2013 versus the comparable 2012 period.

As shown in the net interest income analysis table below for the three months ended September 30, 2013 and 2012, net interest income decreased by $182 thousand resulting from a 27 basis point reduction in the Company’s net interest margin to 3.82% in the third quarter of 2013 versus the third quarter of 2012, offset in part by a $94 million increase in average total interest-earning assets.The decrease in the net interest margin was due to lower average yields on the Company’s investment and loan portfolios, down 102 basis points and 82 basis points, respectively, in 2013 versus 2012. The Company’s average balance sheet mix continues to improve as average loans increased by $108 million (13.2%) versus third quarter 2012 and low-yielding overnight interest-bearing deposits declined by $119 million (39.1%) during the same period. Liquid investments represented 12% of average total interest-earning assets in the third quarter of 2013 versus 21% in the comparable 2012 period.

The Company’s third quarter 2013 average total interest-earning asset yield was 4.00%, down 33 basis points from the comparable 2012 period principally due to the aforementioned reductions in the yields on the Company’s securities and loan portfolios. The Company’s average cost of total interest-bearing liabilities declined by 11 basis points to 0.33% in the third quarter of 2013 versus 0.44% in the third quarter of 2012. The Company’s total cost of funds, among the lowest in the industry, declined to 0.19% in the third quarter of 2013 from 0.26% a year ago. The Company’s lower funding cost resulted largely from average core deposits of $1.3 billion in 2013, with average demand deposits representing 41% of average total deposits. The average cost of time deposits declined 25 basis points in the third quarter of 2013 to 0.69% compared to the same period in 2012. The Company also experienced an $11 million decrease in the average balance of time deposits for the third quarter of 2013 versus the same period in 2012.

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NET INTEREST INCOME ANALYSIS

For the Three Months Ended September 30, 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)	$	427,867	$	3,945			3.66	%	$	323,630	$	3,807			4.68	%
Federal Reserve Bank,  Federal Home Loan Bank and other stock		2,916		36			4.90			2,368		28			4.70
Federal funds sold and interest-bearing deposits		185,324		140			0.30			304,412		168			0.22
Loans (2)		932,578		11,506			4.89			824,148		11,825			5.71
Total interest-earning assets		1,548,685	$	15,627			4.00	%		1,454,558	$	15,828			4.33	%
Non-interest-earning assets		143,177								105,311
Total assets	$	1,691,862							$	1,559,869
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Saving, N.O.W. and money market deposits	$	642,982	$	308			0.19	%	$	551,566	$	286			0.21	%
Time deposits		243,207		425			0.69			253,770		601			0.94
Total saving and time deposits		886,189		733			0.33			805,336		887			0.44
Borrowings		-		-			-			-		-			-
Total interest-bearing liabilities		886,189		733			0.33			805,336		887			0.44
Demand deposits		622,342								576,825
Other liabilities		23,650								34,228
Total liabilities		1,532,181								1,416,389
Stockholders' equity		159,681								143,480
Total liabilities and stockholders' equity	$	1,691,862							$	1,559,869
Total cost of funds							0.19	%							0.26	%
Net interest rate spread							3.67	%							3.89	%
Net interest income/margin				14,894			3.82	%				14,941			4.09	%
Less tax-equivalent basis adjustment				(922	)							(787	)
Net interest income			$	13,972							$	14,154

(1) Interest on securities includes the effects of tax-equivalent basis adjustments of $880 and $787 in 2013 and 2012, respectively.

(2) Interest on loans includes the effect of a tax-equivalent basis adjustment of $42 in 2013.

The Company recorded no consolidated provision for loan losses for the three months ended September 30, 2013. The $12.0 million provision for loan losses recorded during the third quarter of 2012 resulted from workout and asset disposition activities undertaken in that period. The adequacy of the provision and the resulting allowance for loan losses, which was $18 million at September 30, 2013, 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.)

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Non-Interest Income

For the quarters and nine months ended September 30, 2013 and 2012

(dollars in thousands)

						Over/								Over/
	Quarters ended September 30,					(under)			Nine months ended September 30,					(under)
	2013		2012			2012			2013		2012			2012
Service charges on deposit accounts	$	964	$	1,022			(5.7	)%	$	2,839	$	2,972			(4.5	)%
Other service charges, commissions and fees		928		927			0.1			2,451		2,523			(2.9	)
Fiduciary fees		279		266			4.9			815		675			20.7
Net gain (loss) on sale of securities available for sale		3		(162	)		N/M	(1)		395		(162	)		N/M	(1)
Net gain (loss) on sale of portfolio loans		-		(712	)		N/M	(1)		445		(712	)		N/M	(1)
Net gain on sale of mortgage loans originated for sale		142		341			(58.4	)		973		760			28.0
Gain on Visa shares sold		3,836		-			N/M	(1)		3,836		-			N/M	(1)
Income from bank owned life insurance		357		-			N/M	(1)		399		-			N/M	(1)
Other operating income		78		199			(60.8	)		215		481			(55.3	)
Total non-interest income	$	6,587	$	1,881			250.2	%	$	12,368	$	6,537			89.2	%

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

Non-interest income increased by $4.7 million in the third quarter of 2013 versus the comparable 2012 period. This increase was principally due to a $3.8 million pre-tax gain on the sale of Visa Class B shares executed in 2013. The Company received these shares in 2008 as part of Visa’s initial public offering. The Company sold 50,000 shares during the third quarter and at September 30, 2013 continued to hold 88,638 Class B shares. A reserve of $460 thousand was established for potential future reductions in the Visa Class B conversion ratio and was recorded in other operating expenses, thereby resulting in a $3.4 million net gain on the sale of Visa Class B shares in the third quarter. The remaining Class B shares that the Company owns are carried at a zero cost basis due to certain pending litigation against Visa. Also contributing to the improvement in non-interest income in 2013 versus 2012 was a $357 thousand increase in income from the Company’s $38 million investment in bank owned life insurance in 2013.  The Company had no such investment prior to 2013.

On October 16, 2013, the Bank sold 40,000 Visa Class B shares at a gross pre-tax gain of approximately $2.7 million, which will be recorded in non-interest income in the Company’s statement of operations in the fourth quarter of 2013. The Company will also record its current estimate of the related liability of approximately $374 thousand arising from the sale of these shares as an operating expense in the fourth quarter as it retains the risk of future additions to the Visa, Inc. litigation reserve.

The Company continues to own 48,638 Visa Class B shares subsequent to the sale described above. These shares remain restricted because of the continuing uncertainty of the litigation pending against Visa, Inc.  Accordingly, the Company continues to record its Visa Class B shares at zero pending the outcome of the litigation. To the extent that the Company continues to own Visa Class B shares in the future, the Company expects to record the fair value of those shares upon expiration of the foregoing restriction.

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Operating Expenses

For the quarters and nine months ended September 30, 2013 and 2012

(dollars in thousands)

					Over/							Over/
	Quarters ended September 30,				(under)			Nine months ended September 30,				(under)
	2013		2012		2012			2013		2012		2012
Employee compensation and benefits (1)	$	8,709	$	9,486		(8.2	)%	$	24,037	$	26,945		(10.8	)%
Occupancy expense		1,585		1,480		7.1			4,787		4,210		13.7
Equipment expense		616		509		21.0			1,745		1,512		15.4
Consulting and professional services		735		781		(5.9	)		1,881		2,421		(22.3	)
FDIC assessment		373		508		(26.6	)		1,414		1,056		33.9
Data processing		607		637		(4.7	)		1,823		1,731		5.3
Accounting and audit fees		152		167		(9.0	)		351		910		(61.4	)
Branch consolidation costs		460		-		N/M	(2)		460		-		N/M	(2)
Other operating expenses		1,853		3,603		(48.6	)		5,085		7,130		(28.7	)
Total operating expenses	$	15,090	$	17,171		(12.1	)%	$	41,583	$	45,915		(9.4	)%

(1) Results for the 2013 nine-month period are net of a $1,659 non-recurring gain arising from the termination of post-retirement life insurance benefits during the second quarter of 2013.

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

Total operating expenses declined by $2.1 million or 12.1% in 2013 versus 2012 primarily as the result of a reduction in employee compensation and benefits, FDIC assessment and other operating expenses.  Employee compensation and benefits expense declined by $777 thousand or 8.2% in the third quarter of 2013, largely due to lower pension costs in 2013. FDIC assessment expense declined by $135 thousand or 26.6% as the result of improved metrics associated with the Company’s increased financial performance in 2013. Other operating expenses declined by $1.8 million or 48.6% in the third quarter of 2013 due principally to expenses incurred in 2012 in connection with the bulk sale of non-performing assets in that period. Partially offsetting these lower costs were a reserve of $460 thousand established in 2013 for potential future reductions in the Visa Class B conversion ratio and one-time costs of $596 thousand, including accelerated depreciation, incurred in closing two branch offices in 2013. Of these one-time expenses, the amounts recorded in branch consolidation costs (primarily lease termination costs and severance), occupancy expense and equipment expense were $460 thousand, $84 thousand and $52 thousand, respectively.

The Company recorded income tax expense of $1.6 million in the third quarter of 2013 resulting in an effective tax rate of 28.5% versus an income tax benefit of $4.0 million in the comparable period a year ago.

Material Changes in Results of Operations – Comparison of the Nine Months Ended September 30, 2013 and 2012 – The Company recorded net income of $9.4 million during the first nine months of 2013 versus a net loss of $3.8 million in the comparable 2012 period. The increase in 2013 net income primarily reflects a $9.6 million decrease in the provision for loan losses, a $5.8 million improvement in non-interest income and a $4.3 million reduction in total operating expenses in the 2013 year-to-date period versus 2012. Somewhat offsetting these positive factors were a $1.8 million reduction in net interest income and a $4.8 million increase in income tax expense in 2013.

As shown in the net interest income analysis table below for the nine months ended September 30, 2013 and 2012, net interest income decreased $1.8 million resulting from a 38 basis point reduction in the Company’s net interest margin to 3.86% in the first nine months of 2013 versus the comparable 2012 period, offset in part by a $91 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 high level of liquid assets in the form of low-yielding overnight interest-bearing deposits which represented 16% of average total interest-earning assets in the first nine months of 2013.

The Company’s average total interest-earning asset yield for the first nine months of 2013 was 4.06%, down 44 basis points from the comparable 2012 period principally due to an 86 basis point reduction in the average yield on the Company’s investment securities portfolio to 3.77% in the first nine months of 2013 from 4.63% in the comparable 2012 period. This is largely a result of principal paydowns of mortgage-backed securities and CMOs of U.S. Government-sponsored enterprises and calls of U.S. Government agency securities, 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 $111 million for the first nine months of 2013 as compared to the same period in 2012. This was primarily due to purchases of U.S. Government agency securities and mortgage-backed securities of U.S. Government-sponsored enterprises.

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The Company’s average cost of total interest-bearing liabilities declined by 13 basis points to 0.35% in the first nine months of 2013 versus 0.48% in the comparable 2012 period. The Company’s lower funding cost resulted largely from average core deposits of $1.2 billion in the first nine months of 2013, with average demand deposits representing 41% of average total deposits. The average cost of time deposits declined 29 basis points in the first nine months of 2013 to 0.74% compared to the same period in 2012. The Company also experienced a $12 million decrease in the average balance of time deposits for the first nine months of 2013 versus the same period in 2012.

NET INTEREST INCOME ANALYSIS

For the Nine Months Ended September 30, 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)	$	424,832	$	11,965			3.77	%	$	314,031	$	10,885			4.63	%
Federal Reserve Bank,  Federal Home Loan Bank and other stock		2,961		111			5.01			2,436		91			4.99
Federal funds sold and interest-bearing deposits		243,369		502			0.28			225,123		382			0.23
Loans (2)		858,078		33,840			5.27			896,655		37,146			5.53
Total interest-earning assets		1,529,240	$	46,418			4.06	%		1,438,245	$	48,504			4.50	%
Non-interest-earning assets		116,082								93,528
Total assets	$	1,645,322							$	1,531,773
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Saving, N.O.W. and money market deposits	$	617,990	$	888			0.19	%	$	547,238	$	906			0.22	%
Time deposits		246,370		1,360			0.74			258,145		1,984			1.03
Total saving and time deposits		864,360		2,248			0.35			805,383		2,890			0.48
Borrowings		8		-			-			77		-			-
Total interest-bearing liabilities		864,368		2,248			0.35			805,460		2,890			0.48
Demand deposits		592,907								544,871
Other liabilities		24,899								42,665
Total liabilities		1,482,174								1,392,996
Stockholders' equity		163,148								138,777
Total liabilities and stockholders' equity	$	1,645,322							$	1,531,773
Total cost of funds							0.21	%							0.29	%
Net interest rate spread							3.71	%							4.03	%
Net interest income/margin				44,170			3.86	%				45,614			4.24	%
Less tax-equivalent basis adjustment				(2,709	)							(2,374	)
Net interest income			$	41,461							$	43,240

(1) Interest on securities includes the effects of tax-equivalent basis adjustments of $2,665 and $2,374 in 2013 and 2012, respectively.

(2) Interest on loans includes the effect of a tax-equivalent basis adjustment of $44 in 2013.

The Company recorded no consolidated provision for loan losses for the nine months ended September 30, 2013 as compared to a provision for loan losses of $9.6 million during the first nine months of 2012. The adequacy of the provision and the resulting allowance for loan losses, which was $18 million at September 30, 2013, 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.)

38

The $5.8 million increase in non-interest income resulted from improvements in several categories, including the previously noted $3.8 million gain on the sale of Visa Class B shares in 2013, a $1.2 million increase in the net gain on the sale of portfolio loans, a $557 thousand increase in the net gain on the sale of securities available for sale, a $399 thousand increase in income from bank owned life insurance and a $213 thousand increase in the net gain on the sale of mortgage loans originated for sale.

Total operating expenses declined by $4.3 million or 9.4% in 2013 versus 2012 primarily as the result of reductions in employee compensation and benefits, consulting and professional services, accounting and audit fees and other operating expenses. Employee compensation and benefits expense declined by $2.9 million or 10.8% in the first nine months of 2013, largely due to a $1.7 million non-recurring gain related to the termination of post-retirement life insurance benefits coupled with lower pension costs in 2013 that resulted from a freezing of the Company’s defined benefit plan at December 31, 2012. 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 of $540 thousand in the first nine months of 2013 as compared to the same 2012 period. The decrease of $559 thousand in accounting and audit fees in the first nine months 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. These cost savings were partially offset by increases in occupancy expense (up $577 thousand), which includes $84 thousand in accelerated depreciation incurred in closing two branch offices in 2013, and FDIC assessment expense (up $358 thousand). The increase in occupancy expense was due to higher rent and utilities costs, while the increase in FDIC assessment expense reflected the Company’s first quarter 2012 reassessment of the carrying value of its prepaid FDIC assessment asset with the cumulative expense adjusted downward accordingly in that period. The increase in rent resulted from the opening of a new loan production office in Melville in the fourth quarter of 2012 coupled with a credit for deferred rent in 2012. Higher utilities costs reflected overall utility rate increases in 2013. Additional one-time branch closing costs of $460 thousand and $52 thousand were recorded in branch consolidation costs and equipment expense, respectively, in 2013.

The Company recorded income tax expense of $2.9 million in the first nine months of 2013 resulting in an effective tax rate of 23.3% versus an income tax benefit of $1.9 million in the comparable 2012 period.

Asset Quality - Non-accrual loans, excluding loans categorized as held-for-sale, totaled $23 million or 2.26% of total loans outstanding at September 30, 2013 versus $16 million or 2.10% of loans outstanding at December 31, 2012 and $14 million or 1.87% of loans outstanding at September 30, 2012. The allowance for loan losses as a percentage of total non-accrual loans amounted to 78% at September 30, 2013 versus 108% at December 31, 2012 and 146% at September 30, 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 $5 million or 0.46% of loans outstanding at September 30, 2013 versus $14 million or 1.81% of loans outstanding as of December 31, 2012 and $16 million or 2.06% of loans outstanding at September 30, 2012.The Company held no OREO at September 30, 2013. The Company held OREO amounting to $1.6 million at both December 31, 2012 and September 30, 2012. The Company sold one OREO property at its carrying value of $1.2 million in the first quarter of 2013 and its remaining OREO property during the second quarter of 2013.

39

Total criticized and classified loans were $64 million at September 30, 2013, $73 million at June 30, 2013, $99 million at December 31, 2012 and $113 million at September 30, 2012. Criticized loans are those loans that are not classified but require some degree of heightened monitoring. Classified loans were $53 million at September 30, 2013, $47 million at June 30, 2013, $54 million at December 31, 2012 and $62 million at September 30, 2012. The allowance for loan losses as a percentage of total classified loans was 34%, 36%, 33% and 34%, respectively, at the same dates. At September 30, 2013, the Company had $15 million in TDRs, primarily consisting of commercial and industrial loans, commercial real estate loans and residential mortgages totaling $6 million, $5 million and $4 million, respectively. At September 30, 2013, $10 million of the TDRs were current and accruing and $5 million were on non-accrual status. The Company had TDRs amounting to $17 million at December 31, 2012 and $15 million at September 30, 2012.

Net loan recoveries of $326 thousand were recorded in the third quarter of 2013 versus net loan charge-offs of $541 thousand in the second quarter of 2013 and net loan charge-offs of $20.2 million in the third quarter of 2012. As a percentage of average total loans outstanding, these net amounts represented, on an annualized basis, (0.14%) for the third quarter of 2013, 0.26% for the second quarter of 2013 and 9.75% for the third quarter of 2012. Included in third quarter 2012 net charge-offs were $19.6 million in charge-offs related to non-performing loans transferred to held-for-sale and then sold during the quarter.

As of September 30, 2013, the Company’s allowance for loan losses amounted to $18 million or 1.76% of period-end loans outstanding. The allowance as a percentage of loans outstanding was 2.28% at December 31, 2012 and 2.74% at September 30, 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. The Company continues to have an allowance for loan losses that compares favorably to both our local and national peer groups as defined in the Uniform Bank Performance Report (“UBPR”). As per the most recent UBPR reports at June 30, 2013, the national peer group’s allowance for loan losses to total loans was 1.74% as compared to the Company’s ratios of 1.76% and 1.93% at September 30 and June 30, 2013, respectively. In comparison to the Company’s local peer group, the Company’s allowance for loan losses to total loans exceeded those peers, on average, by 70 basis points at June 30, 2013. Recent publications have stated, and earnings results announced by commercial banks indicate, that many financial institutions continue to release loan loss reserves. The Company believes its allowance for loan losses will remain strong in comparison to its peers.

40

The increase in non-accrual loans at September 30, 2013 compared to June 30, 2013 resulted primarily from the addition of one commercial relationship totaling $6.8 million in the third quarter. This credit is current as to principal and interest payments but was added to total non-accrual status due to global cash flow concerns. At September 30, 2013, approximately 80% of the Company’s non-accrual loans were current with respect to principal and interest payments.

Loan portfolio growth was strong during the third quarter of 2013, primarily in commercial real estate and multifamily loans. Total loans analyzed for purposes of calculating the adequacy of the allowance for loan losses increased 11.6% at September 30, 2013 as compared to June 30, 2013. Additional loan growth is expected during the fourth quarter of 2013. At September 30, 2013, the Company’s allowance for loan losses included an unallocated portion totaling $1.7 million. Given that non-accrual loans increased during the third quarter of 2013 as compared to June 30, 2013 and the allowance for loan losses to non-accrual loans declined to 78% at September 30, 2013 from 101% at June 30, 2013, the unallocated portion of the Company’s allowance for loan losses is considered by management to be a prudent and mitigating factor in the evaluation of the credit quality of the loan 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.)

41

ANALYSIS OF NON-PERFORMING ASSETS

AND THE ALLOWANCE FOR LOAN LOSSES

September 30, 2013 versus December 31, 2012 and September 30, 2012

(dollars in thousands)

NON-PERFORMING ASSETS BY TYPE:

	At
	9/30/2013		12/31/2012		9/30/2012
Non-accrual loans	$	22,577	$	16,435	$	14,356
Non-accrual loans held-for-sale		-		907		7,000
Loans 90 days or more past due and still accruing		-		-		-
OREO		-		1,572		1,572
Total non-performing assets	$	22,577	$	18,914	$	22,928
Gross loans outstanding	$	999,329	$	780,780	$	766,569
Total loans held-for-sale	$	613	$	907	$	7,000

ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES:

	Quarter Ended
	9/30/2013			12/31/2012			9/30/2012
Beginning balance	$	17,293		$	21,021		$	29,227
Provision (credit)		-			(1,100	)		12,000
Charge-offs		(141	)		(2,526	)		(21,338	)
Recoveries		467			386			1,132
Ending balance	$	17,619		$	17,781		$	21,021

	Year-to-Date
	9/30/2013			12/31/2012			9/30/2012
Beginning balance	$	17,781		$	39,958		$	39,958
Provision		-			8,500			9,600
Charge-offs		(1,964	)		(33,946	)		(31,420	)
Recoveries		1,802			3,269			2,883
Ending balance		17,619		$	17,781		$	21,021

KEY  RATIOS:

	At
	9/30/2013			12/31/2012			9/30/2012
Allowance as a % of total loans (1)		1.76	%		2.28	%		2.74	%
Non-accrual loans as a % of total loans (1)		2.26	%		2.10	%		1.87	%
Non-performing assets as a % of total loans, loans held-for-sale and OREO		2.26	%		2.41	%		2.96	%
Allowance for loan losses as a % of non-accrual loans (1)		78	%		108	%		146	%
Allowance for loan losses as a % of non-accrual loans and loans 90 days or more past due and still accruing (1)		78	%		108	%		146	%

(1) Excludes loans held-for-sale.

42

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.

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 third 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.

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.

The Company’s loan portfolio has a high concentration of real estate loans (exclusive of multifamily 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 September 30, 2013, $679 million, or 68% of the Company’s total gross loan portfolio, was comprised of residential and commercial real estate (exclusive of multifamily loans), 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.

43

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

44

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: October 31, 2013	/s/ Howard C. Bluver
	Howard C. Bluver
	President & Chief Executive Officer
	(principal executive officer)
Date: October 31, 2013	/s/ Brian K. Finneran
	Brian K. Finneran
	Executive Vice President & Chief Financial Officer
	(principal financial and accounting officer)

45

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

46

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: October 31, 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: October 31, 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 September 30, 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: October 31, 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 September 30, 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: October 31, 2013

/s/ Brian K. Finneran

Brian K. Finneran

Executive Vice President & Chief Financial Officer

(principal financial and accounting officer)

XML

FAIR VALUE

9 Months Ended

Sep. 30, 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	September 30, 2013				December 31, 2012
	Fair Value	Carrying		Estimated		Carrying		Estimated
	Heirarchy	Amount		Fair Value		Amount		Fair Value
Cash and due from banks	Level 1	$	209,636	$	209,636	$	384,656	$	384,656
Cash equivalents	Level 2		1,000		1,000		1,150		1,150
Interest-bearing time deposits in other banks	Level 2		10,000		10,000		-		-
Federal Reserve Bank, Federal Home Loan Bank and other stock	N/A		2,916		N/A		3,043		N/A
Investment securities held to maturity	Level 2		7,150		7,793		8,035		8,861
Investment securities available for sale	Level 2		414,151		414,151		402,353		402,353
Loans held-for-sale	Level 3		613		613		907		907
Loans, net of allowance	Level 2, 3 (1)		981,710		992,221		762,999		787,597
Bank owned life insurance	Level 3		38,399		38,399		-		-
Accrued interest and loan fees receivable	Level 2		5,966		5,966		4,883		4,883
Non-maturity deposits	Level 2		1,300,357		1,300,357		1,187,383		1,187,383
Time deposits	Level 2		236,893		237,878		243,731		245,595
Accrued interest payable	Level 2		197		197		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.

For cash and due from banks, cash equivalents, interest-bearing time deposits in other banks, bank owned life insurance, accrued interest and loan fees receivable, non-maturity deposits and accrued interest payable, the carrying amount is a reasonable estimate of fair value. Time deposits 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 parties.

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.

During the third quarter of 2013, the Company entered into a swap agreement with the purchaser of its VISA Class B shares. The valuation represents the internally developed estimate of the exposure based upon probability-weighted potential VISA litigation losses.

Assets and liabilities 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:	September 30, 2013		(Level 2)		(Level 3)
U.S. Government agency securities	$	102,510	$	102,510	$	-
Corporate bonds		15,609		15,609		-
Collateralized mortgage obligations		36,264		36,264		-
Mortgage-backed securities		99,985		99,985		-
Obligations of states and political subdivisions		159,783		159,783		-
Loans held-for-sale		613		-		613
Mortgage servicing rights		2,169		-		2,169
Total	$	416,933	$	414,151	$	2,782
Liabilities:
Derivatives	$	460	$	-	$	460
Total	$	460	$	-	$	460

			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):

Assets:	September 30, 2013		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Impaired loans	$	20,117	$	20,117
Total	$	20,117	$	20,117
Assets:	December 31, 2012		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Impaired loans	$	9,390	$	9,390
OREO		1,572		1,572
Total	$	10,962	$	10,962

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SUBSEQUENT EVENTS (Details) (Subsequent Event [Member], Owner of Visa Class B Stock [Member], USD $)	Oct. 16, 2013
Subsequent Event [Member] | Owner of Visa Class B Stock [Member]
Subsequent Event [Line Items]
Shares of stock sold in stock transaction (in shares)	40,000
Pre-tax gain on the sale of Class B stock	$ 2,700,000
Accrued liability from sale of Class B stock	$ 374,000
Shares of stock owned by Company after sale of stock (in shares)	48,638

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
INTEREST INCOME
Loans and loan fees	$ 11,464	$ 11,825	$ 33,796	$ 37,146
U.S. Government agency obligations	592	30	1,405	34
Obligations of states and political subdivisions	1,477	1,517	4,466	4,569
Collateralized mortgage obligations	386	1,256	1,767	3,649
Mortgage-backed securities	518	145	1,357	171
Corporate bonds	92	72	305	88
Federal funds sold and interest-bearing deposits due from banks	140	168	502	382
Dividends	36	28	111	91
Total interest income	14,705	15,041	43,709	46,130
INTEREST EXPENSE
Saving, N.O.W. and money market deposits	308	286	888	906
Time certificates of $100,000 or more	280	372	874	1,217
Other time deposits	145	229	486	767
Total interest expense	733	887	2,248	2,890
Net interest income	13,972	14,154	41,461	43,240
Provision for loan losses	0	12,000	0	9,600
Net interest income after provision for loan losses	13,972	2,154	41,461	33,640
NON-INTEREST INCOME
Service charges on deposit accounts	964	1,022	2,839	2,972
Other service charges, commissions and fees	928	927	2,451	2,523
Fiduciary fees	279	266	815	675
Net gain (loss) on sale of securities available for sale	3	(162)	395	(162)
Net gain (loss) on sale of portfolio loans	0	(712)	445	(712)
Net gain on sale of mortgage loans originated for sale	142	341	973	760
Gain on Visa shares sold	3,836	0	3,836	0
Income from bank owned life insurance	357	0	399	0
Other operating income	78	199	215	481
Total non-interest income	6,587	1,881	12,368	6,537
OPERATING EXPENSES
Employee compensation and benefits	8,709	9,486	24,037	26,945
Occupancy expense	1,585	1,480	4,787	4,210
Equipment expense	616	509	1,745	1,512
Consulting and professional services	735	781	1,881	2,421
FDIC assessment	373	508	1,414	1,056
Data processing	607	637	1,823	1,731
Accounting and audit fees	152	167	351	910
Branch consolidation costs	460	0	460	0
Other operating expenses	1,853	3,603	5,085	7,130
Total operating expenses	15,090	17,171	41,583	45,915
Income (loss) before income tax expense (benefit)	5,469	(13,136)	12,246	(5,738)
Income tax expense (benefit)	1,557	(3,975)	2,856	(1,945)
NET INCOME (LOSS)	$ 3,912	$ (9,161)	$ 9,390	$ (3,793)
EARNINGS (LOSS) PER COMMON SHARE - BASIC (in dollars per shares)	$ 0.34	$ (0.94)	$ 0.81	$ (0.39)
EARNINGS (LOSS) PER COMMON SHARE - DILUTED (in dollars per shares)	$ 0.34	$ (0.94)	$ 0.81	$ (0.39)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES - BASIC (in shares)	11,573,014	9,837,959	11,569,961	9,764,133
WEIGHTED AVERAGE NUMBER OF COMMON SHARES - DILUTED (in shares)	11,606,702	9,837,959	11,583,044	9,764,133

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ACCUMULATED OTHER COMPREHENSIVE INCOME (AOCI)

9 Months Ended

Sep. 30, 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 and nine months ended September 30, 2013 and 2012 follow (in thousands). The decrease in net unrealized gains on available for sale securities for both the three and nine months ended September 30, 2013 resulted solely from the negative impact of higher interest rates in 2013.

	Three Months Ended September 30, 2013									Three Months Ended September 30, 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	$	111		$	(7,944	)	$	(7,833	)	$	9,213	$	(15,198	)	$	(5,985	)
Other comprehensive loss (income) before reclassifications		(1,443	)		-			(1,443	)		3,376		(1,116	)		2,260
Amounts reclassified from AOCI		(2	)		-			(2	)		103		-			103
Net other comprehensive loss (income)		(1,445	)		-			(1,445	)		3,479		(1,116	)		2,363
Ending balance	$	(1,334	)	$	(7,944	)	$	(9,278	)	$	12,692	$	(16,314	)	$	(3,622	)

	Nine Months Ended September 30, 2013									Nine Months Ended September 30, 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 (income) before reclassifications		(11,635	)		(277	)		(11,912	)		716		(1,371	)		(655	)
Amounts reclassified from AOCI		(252	)		-			(252	)		103		-			103
Net other comprehensive loss (income)		(11,887	)		(277	)		(12,164	)		819		(1,371	)		(552	)
Ending balance	$	(1,334	)	$	(7,944	)	$	(9,278	)	$	12,692	$	(16,314	)	$	(3,622	)

The table below presents reclassifications out of AOCI for the three and nine months ended September 30, 2013 (in thousands).

	Amount Reclassified from AOCI
Details about AOCI Components	Three Months Ended September 30, 2013			Nine Months Ended September 30, 2013			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available for sale securities	$	3		$	395		Net gain (loss) on sale of securities available for sale
		(1	)		(143	)	Income tax expense (benefit)
Total reclassifications, net of tax	$	2		$	252

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EMPLOYEE BENEFITS (Tables)

9 Months Ended

Sep. 30, 2013

EMPLOYEE BENEFITS [Abstract]

Net periodic defined benefit pension expense

The following table presents information concerning net periodic defined benefit pension (income) expense for the three and nine months ended September 30, 2013 and 2012 (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Service cost	$	-		$	603		$	-		$	1,809
Interest cost		499			555			1,495			1,664
Expected return on plan assets		(577	)		(527	)		(1,727	)		(1,581	)
Net amortization		62			406			184			1,220
Net periodic benefit (income) expense	$	(16	)	$	1,037		$	(48	)	$	3,112

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LEGAL PROCEEDINGS

9 Months Ended

Sep. 30, 2013

LEGAL PROCEEDINGS [Abstract]

LEGAL PROCEEDINGS

10. LEGAL PROCEEDINGS

On September 25, 2013, the Supreme Court of the State of New York for the County of Suffolk dismissed with prejudice the shareholder derivative action, Susan Forbush v. Edgar F. Goodale, et al., No. 33538/11, filed in the Supreme Court on October 28, 2011, and approved the settlement among the parties to that action along with another shareholder of the Company who had made a litigation demand on the Company. On October 4, 2013, as requested by the parties in accordance with their settlement agreement, the U.S. District Court for the Eastern District of New York dismissed with prejudice the shareholder derivative action, Robert J. Levy v. J. Gordon Huszagh, et al., No. 11 Civ. 3321 (JS), filed in the District Court on July 11, 2011. These derivative actions alleged that the 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.  The Company denied and continues to deny each and all of the allegations alleged by the plaintiffs in the actions. The terms of the settlement require the Company to implement various corporate governance enhancements, and, as part of the settlement, plaintiff’s counsel was awarded fees and expenses in the amount of $600,000 which was paid by the Company’s insurer.

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 (the “Class Members”). 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 an order preliminarily approving the proposed settlement, directing dissemination and publication of notice of the proposed settlement to Class Members, and scheduling a hearing on whether the settlement should be finally approved by the court. On July 18, 2013, the court granted the motion. On August 1, 2013, in accordance with the parties’ settlement agreement and the court’s preliminary approval order, the Company’s insurer paid the sum of $2.8 million to an escrow account for the benefit of Class Members. A final settlement approval hearing is scheduled for November 13, 2013. Management does not believe that the ultimate resolution of this matter will have a material adverse impact on the consolidated financial statements.

On August 12, 2013, the Company was informed that the SEC closed its previously disclosed investigation of the Company. No action was taken against the Company. The SEC’s New York regional office had formally requested certain loan files, other records and information from the Company but had not asserted that any federal securities law violation occurred.

The Company assesses its liabilities and contingencies in connection with legal proceedings on an ongoing basis. For those matters where it is probable that the Company will incur losses and the amounts of the losses can be reasonably estimated, the Company records an expense and corresponding liability in its consolidated financial statements. We have concluded that an amount for such a loss contingency is not to be accrued at this time.

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REGULATORY MATTERS (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Total Capital (to risk-weighted assets) [Abstract]
Actual capital ratios, Amount	$ 176,252	$ 162,458
Minimum for capital adequacy, Amount	93,382	72,020
Minimum to be "Well Capitalized" under prompt corrective action provisions, Amount	116,728	90,025
Total Capital (to risk-weighted assets) Ratios [Abstract]
Actual capital ratios, Ratio (in hundredths)	15.10%	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	161,620	151,121
Minimum for capital adequacy, Amount	46,691	36,010
Minimum to be "Well Capitalized" under prompt corrective action provisions, Amount	70,037	54,015
Tier 1 Capital (to risk-weighted assets) Ratio [Abstract]
Actual capital ratios, ratio (in hundredths)	13.85%	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	161,620	151,121
Minimum for capital adequacy, Amount	67,418	62,092
Minimum to be "Well Capitalized" under prompt corrective action provisions, Amount	$ 84,273	$ 77,615
Tier 1 Capital (to average assets) Ratios [Abstract]
Actual capital ratios, ratio (in hundredths)	9.59%	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)	9.59%	9.74%
Tier 1 Risk-based Capital Ratio (in hundredths)	13.85%	16.79%
Total Risk-based Capital Ratio (in hundredths)	15.10%	18.05%
Parent Company [Member]
Total Capital (to risk-weighted assets) Ratios [Abstract]
Actual capital ratios, Ratio (in hundredths)	15.19%
Tier 1 Capital (to risk-weighted assets) Ratio [Abstract]
Actual capital ratios, ratio (in hundredths)	13.94%
Tier 1 Capital (to average assets) Ratios [Abstract]
Actual capital ratios, ratio (in hundredths)	9.66%
Tier 1 Leverage Capital ratio (in hundredths)	9.66%
Tier 1 Risk-based Capital Ratio (in hundredths)	13.94%
Total Risk-based Capital Ratio (in hundredths)	15.19%

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LOANS, Loans Modified as Troubled Debt Restructurings (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013 Loan	Sep. 30, 2012 Loan	Sep. 30, 2013 Loan	Sep. 30, 2012 Loan	Dec. 31, 2012 Loan
Troubled debt restructuring at end of period [Abstract]
Number of loans	70		70		70
Outstanding recorded investment	$ 14,950		$ 14,950		$ 16,604
Troubled debt restructured during year [Abstract]
Number of Loans	2	3	10	15
Outstanding Recorded Balance, pre-modification	247	815	2,061	6,050
Outstanding Recorded Balance, Post modification	247	815	2,061	6,050
Defaulted Troubled Debt Restructurings [Member]
Troubled debt restructured during year [Abstract]
Number of Loans			0	2
Outstanding Recorded Balance, pre-modification			0	1,200
Commercial and Industrial [Member]
Troubled debt restructuring at end of period [Abstract]
Number of loans	42		42		41
Outstanding recorded investment	5,934		5,934		6,468
Troubled debt restructured during year [Abstract]
Number of Loans	1	3	5	13
Outstanding Recorded Balance, pre-modification	228	815	1,120	5,920
Outstanding Recorded Balance, Post modification	228	815	1,120	5,920
Commercial and Industrial [Member] | Defaulted Troubled Debt Restructurings [Member]
Troubled debt restructured during year [Abstract]
Number of Loans			0	2
Outstanding Recorded Balance, pre-modification			0	1,200
Commercial Real Estate [Member]
Troubled debt restructuring at end of period [Abstract]
Number of loans	7		7		9
Outstanding recorded investment	4,933		4,933		6,238
Residential Mortgages [Member]
Troubled debt restructuring at end of period [Abstract]
Number of loans	17		17		15
Outstanding recorded investment	3,922		3,922		3,587
Troubled debt restructured during year [Abstract]
Number of Loans	1	0	4	1
Outstanding Recorded Balance, pre-modification	19	0	924	81
Outstanding Recorded Balance, Post modification	19	0	924	81
Consumer [Member]
Troubled debt restructuring at end of period [Abstract]
Number of loans	4		4		5
Outstanding recorded investment	161		161		311
Troubled debt restructured during year [Abstract]
Number of Loans			1	1
Outstanding Recorded Balance, pre-modification			17	49
Outstanding Recorded Balance, Post modification			$ 17	$ 49

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FAIR VALUE (Tables)

9 Months Ended

Sep. 30, 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	September 30, 2013				December 31, 2012
	Fair Value	Carrying		Estimated		Carrying		Estimated
	Heirarchy	Amount		Fair Value		Amount		Fair Value
Cash and due from banks	Level 1	$	209,636	$	209,636	$	384,656	$	384,656
Cash equivalents	Level 2		1,000		1,000		1,150		1,150
Interest-bearing time deposits in other banks	Level 2		10,000		10,000		-		-
Federal Reserve Bank, Federal Home Loan Bank and other stock	N/A		2,916		N/A		3,043		N/A
Investment securities held to maturity	Level 2		7,150		7,793		8,035		8,861
Investment securities available for sale	Level 2		414,151		414,151		402,353		402,353
Loans held-for-sale	Level 3		613		613		907		907
Loans, net of allowance	Level 2, 3 (1)		981,710		992,221		762,999		787,597
Bank owned life insurance	Level 3		38,399		38,399		-		-
Accrued interest and loan fees receivable	Level 2		5,966		5,966		4,883		4,883
Non-maturity deposits	Level 2		1,300,357		1,300,357		1,187,383		1,187,383
Time deposits	Level 2		236,893		237,878		243,731		245,595
Accrued interest payable	Level 2		197		197		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 and liabilities 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:	September 30, 2013		(Level 2)		(Level 3)
U.S. Government agency securities	$	102,510	$	102,510	$	-
Corporate bonds		15,609		15,609		-
Collateralized mortgage obligations		36,264		36,264		-
Mortgage-backed securities		99,985		99,985		-
Obligations of states and political subdivisions		159,783		159,783		-
Loans held-for-sale		613		-		613
Mortgage servicing rights		2,169		-		2,169
Total	$	416,933	$	414,151	$	2,782
Liabilities:
Derivatives	$	460	$	-	$	460
Total	$	460	$	-	$	460

			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):

Assets:	September 30, 2013		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Impaired loans	$	20,117	$	20,117
Total	$	20,117	$	20,117
Assets:	December 31, 2012		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Impaired loans	$	9,390	$	9,390
OREO		1,572		1,572
Total	$	10,962	$	10,962

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REGULATORY MATTERS (Tables)

9 Months Ended

Sep. 30, 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
September 30, 2013
Total capital to risk-weighted assets	$	176,252		15.10	%	$	93,382		8.00	%	$	116,728		10.00	%
Tier 1 capital to risk-weighted assets		161,620		13.85	%		46,691		4.00	%		70,037		6.00	%
Tier 1 capital to adjusted average assets (leverage)		161,620		9.59	%		67,418		4.00	%		84,273		5.00	%
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	%

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STOCK-BASED COMPENSATION (Details) (USD $)	9 Months Ended		12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options exercise period	3 years		3 years	3 years
Vesting rate	1.33333		1.33333	1.3333
Number of Shares [Roll Forward]
Outstanding at beginning (in shares)	211,500
Granted (in shares)	98,000				0
Exercised (in shares)	(6,667)
Forfeited or expired (in shares)	(25,333)
Outstanding at ending (in shares)	277,500		211,500
Weighted Average Exercise Price [Roll Forward]
Outstanding at beginning (in dollars per share)	$ 15.41
Granted (in dollars per share)	$ 16.99
Exercised (in dollars per share)	$ 13.44
Forfeited or expired (in dollars per share)	$ 15.50
Outstanding at ending (in dollars per share)	$ 16.01		$ 15.41
Information regarding options granted in current year [Abstract]
Risk-free interest rate (in hundredths)	1.19%
Expected dividend yield (in hundredths)	0.00%
Expected life in years	10 years
Expected volatility (in hundredths)	43.00%
Summary of options outstanding and exercisable [Abstract]
Weighted-Average Remaining Contractual Life	8 years 3 months 18 days
Total Shares Outstanding (in shares)	277,500		211,500
Total Weighted-Average Remaining Contractual Life	6 years
Total Weighted-Average Exercise Price (in dollars per share)	$ 16.01		$ 15.41
Total Shares Exercisable (in shares)	62,836
Total Weighted-Average Exercise Price (in dollars per share)	$ 21.92
Compensation expense	$ 367,000	$ 304,000
Remaining unrecognized compensation cost	1,000,000
Remaining unrecognized compensation cost remaining vesting period	2 years 7 months 6 days
$10.00 - $14.00 [Member]
Summary of options outstanding and exercisable [Abstract]
From (in dollars per share)	$ 10.00
To (in dollars per share)	$ 14.00
Shares Outstanding (in shares)	140,000
Weighted-Average Remaining Contractual Life	8 years 4 months 24 days
Weighted-Average Exercise Price (in dollars per share)	$ 12.01
Shares Exercisable (in shares)	30,002
Weighted-Average Remaining Contractual Life	8 years 6 months
Weighted-Average Exercise Price (in dollars per share)	$ 12.68
$14.01 - $20.00 [Member]
Summary of options outstanding and exercisable [Abstract]
From (in dollars per share)	$ 14.01
To (in dollars per share)	$ 20.00
Shares Outstanding (in shares)	108,000
Weighted-Average Remaining Contractual Life	9 years 8 months 12 days
Weighted-Average Exercise Price (in dollars per share)	$ 16.80
Shares Exercisable (in shares)	3,334
Weighted-Average Remaining Contractual Life	9 years
Weighted-Average Exercise Price (in dollars per share)	$ 14.97
$20.01 - $30.00 [Member]
Summary of options outstanding and exercisable [Abstract]
From (in dollars per share)	$ 20.10
To (in dollars per share)	$ 30.00
Shares Outstanding (in shares)	5,000
Weighted-Average Remaining Contractual Life	5 years 3 months 18 days
Weighted-Average Exercise Price (in dollars per share)	$ 28.30
Shares Exercisable (in shares)	5,000
Weighted-Average Remaining Contractual Life	5 years 3 months 18 days
Weighted-Average Exercise Price (in dollars per share)	$ 28.30
$30.01 - $40.00 [Member]
Summary of options outstanding and exercisable [Abstract]
From (in dollars per share)	$ 30.01
To (in dollars per share)	$ 40.00
Shares Outstanding (in shares)	24,500
Weighted-Average Remaining Contractual Life	2 years 7 months 6 days
Weighted-Average Exercise Price (in dollars per share)	$ 32.87
Shares Exercisable (in shares)	24,500
Weighted-Average Remaining Contractual Life	2 years 7 months 6 days
Weighted-Average Exercise Price (in dollars per share)	$ 32.87
Stock Appreciation Rights (SARs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options outstanding related to SAR's (in shares)	6,000
Intrinsic value of SAR's (in dollars per share)	$ 0
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total intrinsic value of options exercised	15,000
Total cash received from option exercises	$ 92,000
Non Qualified Stock Option [Member] | Chief Executive Officer [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options exercise 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 exercise 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)	248,000
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

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LOANS (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Jun. 30, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Dec. 31, 2011
Categorizes total loans [Abstract]
Gross Loans	$ 999,329		$ 780,780
Allowance for loan losses	(17,619)	(17,293)	(17,781)	(21,021)	(29,227)	(39,958)
Net loans	981,710		762,999
Commercial and Industrial [Member]
Categorizes total loans [Abstract]
Gross Loans	172,386		168,709
Commercial Real Estate [Member]
Categorizes total loans [Abstract]
Gross Loans	448,728		360,010
Allowance for loan losses	(7,128)	(6,701)	(5,999)	(6,738)	(8,088)	(10,470)
Multifamily [Member]
Categorizes total loans [Abstract]
Gross Loans	136,983		9,261
Allowance for loan losses	(1,432)	(529)	(150)	(52)	(93)	(559)
Real Estate Construction [Member]
Categorizes total loans [Abstract]
Gross Loans	8,134		15,469
Allowance for loan losses	(274)	(278)	(141)	(62)	(163)	(623)
Residential Mortgages [Member]
Categorizes total loans [Abstract]
Gross Loans	162,658		146,575
Allowance for loan losses	(2,563)	(2,341)	(1,576)	(1,150)	(1,634)	(2,401)
Home Equity [Member]
Categorizes total loans [Abstract]
Gross Loans	59,100		66,468
Consumer [Member]
Categorizes total loans [Abstract]
Gross Loans	11,340		14,288
Allowance for loan losses	$ (233)		$ (189)

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LOANS, Summary of Non-Performing Assets (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Summary of non-performing assets [Abstract]
Non-accrual loans	$ 22,577	$ 16,435
Non-accrual loans held-for-sale	0	907
Loans 90 days past due and still accruing	0	0
OREO	0	1,572
Total non-performing assets	22,577	18,914
TDRs accruing interest	10,024	9,954
TDRs - nonaccruing	$ 4,926	$ 6,650

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FAIR VALUE, Balance Sheets Grouping (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013		Dec. 31, 2012
Carrying amounts and estimated fair values of financial instruments [Abstract]
Interest-bearing time deposits in other banks	$ 10,000		$ 0
Bank Owned Life Insurance	38,399		0
Carrying Amount [Member]
Carrying amounts and estimated fair values of financial instruments [Abstract]
Federal Reserve Bank, Federal Home Loan Bank and other stock	2,916		3,043
Carrying Amount [Member] | Level 1 [Member]
Carrying amounts and estimated fair values of financial instruments [Abstract]
Cash and due from banks	209,636		384,656
Carrying Amount [Member] | Level 2 [Member]
Carrying amounts and estimated fair values of financial instruments [Abstract]
Cash equivalents	1,000		1,150
Interest-bearing time deposits in other banks	10,000		0
Investment securities held to maturity	7,150		8,035
Investment securities available for sale	414,151		402,353
Accrued interest and loan fees receivable	5,966		4,883
Non maturity deposits	1,300,357		1,187,383
Time deposits	236,893		243,731
Accrued interest payable	197		237
Carrying Amount [Member] | Level 3 [Member]
Carrying amounts and estimated fair values of financial instruments [Abstract]
Loans held-for-Sale	613		907
Bank Owned Life Insurance	38,399		0
Carrying Amount [Member] | Level 2/3 [Member]
Carrying amounts and estimated fair values of financial instruments [Abstract]
Loans, net of allowance	981,710	[1]	762,999	[1]
Estimated Fair Value [Member]
Carrying amounts and estimated fair values of financial instruments [Abstract]
Federal Reserve Bank, Federal Home Loan Bank and other stock
Estimated Fair Value [Member] | Level 1 [Member]
Carrying amounts and estimated fair values of financial instruments [Abstract]
Cash and due from banks	209,636		384,656
Estimated Fair Value [Member] | Level 2 [Member]
Carrying amounts and estimated fair values of financial instruments [Abstract]
Cash equivalents	1,000		1,150
Interest-bearing time deposits in other banks	10,000		0
Investment securities held to maturity	7,793		8,861
Investment securities available for sale	414,151		402,353
Accrued interest and loan fees receivable	5,966		4,883
Non maturity deposits	1,300,357		1,187,383
Time deposits	237,878		245,595
Accrued interest payable	197		237
Estimated Fair Value [Member] | Level 3 [Member]
Carrying amounts and estimated fair values of financial instruments [Abstract]
Loans held-for-Sale	613		907
Bank Owned Life Insurance	38,399		0
Estimated Fair Value [Member] | Level 2/3 [Member]
Carrying amounts and estimated fair values of financial instruments [Abstract]
Loans, net of allowance	$ 992,221	[1]	$ 787,597	[1]

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

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Investment Securities, Amortized Cost, Maturities and Approximate Fair Value (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Amortized Cost [Abstract]
Due in one year or less	$ 18,003
Due from one to five years	123,574
Due from five to ten years	251,818
Due after ten years	22,850
Total securities available for sale	416,245
Fair Value [Abstract]
Due in one year or less	18,252
Due from one to five years	129,476
Due from five to ten years	245,440
Due after ten years	20,983
Total securities available for sale	414,151	402,353
Amortized Cost [Abstract]
Due in one year or less	777
Due from one to five years	6,168
Due from five to ten years	205
Total securities held to maturity	7,150
Total investment securities	423,395
Fair Value [Abstract]
Due in one year or less	790
Due from one to five years	6,784
Due from five to ten years	219
Total securities held to maturity	7,793
Total investment securities	$ 421,944

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LOANS, Loans by Internal Assigned Grade for Credit Risk (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Credit risk profile by internally assigned grade [Abstract]
Total	$ 999,329	$ 780,780
Total (in hundredth)	100.00%	100.00%
Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	935,131	681,865
Total (in hundredth)	93.60%	87.30%
Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	11,695	44,665
Total (in hundredth)	1.20%	5.70%
Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	52,503	54,250
Total (in hundredth)	5.20%	7.00%
Commercial and Industrial [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	172,386	168,709
Commercial and Industrial [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	150,149	143,804
Commercial and Industrial [Member] | Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	2,707	5,995
Commercial and Industrial [Member] | Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	19,530	18,910
Commercial Real Estate [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	448,728	360,010
Commercial Real Estate [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	413,226	301,862
Commercial Real Estate [Member] | Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	8,988	38,670
Commercial Real Estate [Member] | Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	26,514	19,478
Multifamily [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	136,983	9,261
Multifamily [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	136,983	9,261
Multifamily [Member] | Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	0	0
Multifamily [Member] | Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	0	0
Real Estate Construction [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	8,134	15,469
Real Estate Construction [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	8,134	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	0	10,679
Residential Mortgages [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	162,658	146,575
Residential Mortgages [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	157,634	141,915
Residential Mortgages [Member] | Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	0	0
Residential Mortgages [Member] | Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	5,024	4,660
Home Equity [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	59,100	66,468
Home Equity [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	57,951	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	1,149	502
Consumer [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	11,340	14,288
Consumer [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	11,054	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	$ 286	$ 21

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STOCK-BASED COMPENSATION (Tables)

9 Months Ended

Sep. 30, 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		98,000		$	16.99
Exercised		(6,667	)	$	13.44
Forfeited or expired		(25,333	)	$	15.50
Outstanding, September 30, 2013		277,500		$	16.01

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 Nine Months Ended September 30, 2013:
Risk-free interest rate	1.19	%
Expected dividend yield	-
Expected life in years	10
Expected volatility	43.00	%

Summary of options outstanding and exercisable

The following summarizes shares subject to purchase from stock options outstanding and exercisable as of September 30, 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
$	10.00 - $14.00		140,000	8.4 years	$	12.01		30,002	8.5 years	$	12.68
$	14.01 - $20.00		108,000	9.7 years	$	16.80		3,334	9.0 years	$	14.97
$	20.01 - $30.00		5,000	5.3 years	$	28.30		5,000	5.3 years	$	28.30
$	30.01 - $40.00		24,500	2.6 years	$	32.87		24,500	2.6 years	$	32.87
			277,500	8.3 years	$	16.01		62,836	6.0 years	$	21.92

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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)
Stock options exercised	0	0
Private equity offering, net of $2,239 of stock issuance costs		18,162
Reissuance of 1,839,533 common shares from treasury in connection with private equity offering				4,599
Net (loss) income			(3,793)			(3,793)
Stock-based compensation		304				304
Other comprehensive loss					(552)	(4,345)
Balance at Sep. 30, 2012	34,330	42,476	87,510	(5,414)	(3,622)	155,280
Balance at Dec. 31, 2012	34,330	42,628	89,555	(5,414)	2,886	163,985
Stock options exercised	18	74
Private equity offering, net of $2,239 of stock issuance costs		0
Reissuance of 1,839,533 common shares from treasury in connection with private equity offering				0
Net (loss) income			9,390			9,390
Stock-based compensation		367				367
Other comprehensive loss					(12,164)	(2,774)
Balance at Sep. 30, 2013	$ 34,348	$ 43,069	$ 98,945	$ (5,414)	$ (9,278)	$ 161,670

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) [Abstract]
NET INCOME (LOSS)	$ 9,390	$ (3,793)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Provision for loan losses	0	9,600
Depreciation and Amortization	2,221	1,928
Stock-based compensation	367	304
Net amortization of premiums	1,002	1,114
Originations of mortgage loans for sale	(38,438)	(30,302)
Proceeds from sale of mortgage loans originated for sale	43,378	31,062
Gain on sale of mortgage loans originated for sale	(973)	(760)
(Gain) loss on sale of portfolio loans	(445)	712
Increase in other intangibles	(313)	(100)
Deferred tax expense	2,434	1,929
Decrease (increase) in income tax receivable	363	(3,879)
(Increase) decrease in accrued interest and loan fees receivable	(1,083)	1,313
Decrease in other assets	2,337	1,624
Adjustment to unfunded pension liability	(48)	3,112
(Decrease) increase in other liabilities	(1,399)	1,580
Income from bank owned life insurance	(399)	0
Gain on Visa shares sold	(3,836)	0
Loss on sale and writedowns of OREO	47	600
(Gain) loss on sale of securities available for sale	(395)	162
Net cash provided by operating activities	14,210	16,206
CASH FLOWS FROM INVESTING ACTIVITIES
Principal payments on investment securities	49,307	22,244
Proceeds from sale of investment securities - available for sale	13,427	3,584
Maturities of investment securities - available for sale	22,001	32,294
Purchases of investment securities - available for sale	(115,803)	(92,808)
Maturities of investment securities - held to maturity	1,481	2,135
Purchases of Investment Securities - held to maturity	(600)	(990)
Increase in interest-bearing time deposits in other banks	(10,000)	0
Decrease in Federal Reserve Bank, Federal Home Loan Bank and other stock	127	168
Proceeds from sale of portfolio loans	1,349	46,343
Loan (Originations) Repayments - Net	(223,288)	120,121
Proceeds from sale of Visa shares	3,836	0
Proceeds from sale of OREO	1,525	0
Increase in bank owned life insurance	(38,000)	0
Purchases of premises and equipment - net	(917)	(1,483)
Net Cash (Used in) Provided by Investing Activities	(295,555)	131,608
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts	106,136	61,242
Proceeds from private equity offering, net	0	22,761
Proceeds from stock options exercised	92	0
Decrease in capital lease payable	(53)	(30)
Net cash provided by financing activities	106,175	83,973
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(175,170)	231,787
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	385,806	172,559
CASH AND CASH EQUIVALENTS, END OF PERIOD	210,636	404,346
Supplemental Disclosures:
Interest paid	2,263	2,951
Income taxes paid	53	0
Loans transferred to held-for-sale	0	53,843
Loans transferred to OREO	$ 0	$ 372

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INVESTMENT SECURITIES

9 Months Ended

Sep. 30, 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. Changes in unrealized gains and losses are reported, net of tax, in the consolidated statements of comprehensive income (loss). 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 September 30, 2013 and December 31, 2012 follow (in thousands).

	September 30, 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		109,338		-		(6,828	)		102,510		65,085		70		(77	)		65,078
Obligations of states and political subdivisions		150,955		8,828		-			159,783		155,121		13,314		-			168,435
Collateralized mortgage obligations		36,208		716		(660	)		36,264		87,624		2,148		(80	)		89,692
Mortgage-backed securities		104,176		31		(4,222	)		99,985		61,750		766		(66	)		62,450
Corporate bonds		15,568		259		(218	)		15,609		15,701		497		-			16,198
Total available for sale securities		416,245		9,834		(11,928	)		414,151		385,781		16,795		(223	)		402,353
Held to maturity:
Obligations of states and political subdivisions		7,150		643		-			7,793		8,035		826		-			8,861
Total investment securities	$	423,395	$	10,477	$	(11,928	)	$	421,944	$	393,816	$	17,621	$	(223	)	$	411,214

At September 30, 2013 and December 31, 2012, investment securities carried at $273 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 September 30, 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.

	September 30, 2013
	Amortized		Estimated
	Cost		Fair Value
Securities available for sale:
Due in one year or less	$	18,003	$	18,252
Due from one to five years		123,574		129,476
Due from five to ten years		251,818		245,440
Due after ten years		22,850		20,983
Total securities available for sale		416,245		414,151
Securities held to maturity:
Due in one year or less		777		790
Due from one to five years		6,168		6,784
Due from five to ten years		205		219
Total securities held to maturity		7,150		7,793
Total investment securities	$	423,395	$	421,944

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

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013		2012			2013		2012
Proceeds	$	-	$	3,584		$	13,427	$	3,584
Gross realized gains	$	3	$	-		$	395	$	-
Gross realized losses		-		162			-		162
Net realized gains (losses)	$	3	$	(162	)	$	395	$	(162	)

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
September 30, 2013	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
Type of securities	Fair value		Losses		Fair value		Losses		Fair value		Losses
U.S. Government agency securities	$	102,510	$	6,828	$	-	$	-	$	102,510	$	6,828
Collateralized mortgage obligations		8,900		660		-		-		8,900		660
Mortgage-backed securities		94,848		4,143		4,764		79		99,612		4,222
Corporate bonds		8,672		218		-		-		8,672		218
Total	$	214,930	$	11,849	$	4,764	$	79	$	219,694	$	11,928

	Less than 12 months				12 months or longer				Total
December 31, 2012	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
Type of securities	Fair value		Losses		Fair value		Losses		Fair value		Losses
U.S. Government agency securities	$	28,958	$	77	$	-	$	-	$	28,958	$	77
Collateralized mortgage obligations		7,878		80		-		-		7,878		80
Mortgage-backed securities		14,098		66		-		-		14,098		66
Total	$	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 FASB Accounting Standards Codification (“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 September 30, 2013.

The Bank was a member of the Visa USA payment network and was issued Class B shares upon Visa, Inc.’s (“VISA”) initial public offering in March 2008.  The VISA Class B shares that the Company owns are transferable only under limited circumstances until they can be converted into shares of the publicly traded class of stock.  This cannot happen until the settlement of certain litigation, which is indemnified by VISA members.  Since its initial public offering, VISA has funded a litigation reserve based upon a change in the ratio for conversion of VISA Class B shares to VISA Class A shares.   At its discretion, Visa may continue to increase the conversion rate in connection with any settlements in excess of amounts then in escrow for that purpose and reduce the conversion rate to the extent that it adds any funds to the escrow in the future. Based on the existing transfer restriction and the uncertainty of the litigation the Company has recorded these shares at zero in the accompanying statement of condition.

On July 30, 2013, the Bank sold 50,000 VISA Class B shares at a gross pre-tax gain of approximately $3.8 million, which was recorded in non-interest income in the Company’s statement of operations in the third quarter of 2013.  In conjunction with the sale, the Company entered into a swap contract with the purchaser that requires a payment to the counterparty in the event that VISA makes subsequent revisions to the conversion ratio for its Class B shares.  The Company also recorded a contingent liability of $460 thousand, representing the Company’s estimate of its potential future exposure to the counterparty for settlement of the VISA litigation. This exposure represents cash payments required as the result of potential future conversion rate changes.  The Company recorded an operating expense in the third quarter of 2013 in connection with this liability. Management believes that the Company’s estimated exposure to the VISA indemnification is adequate based on current information; however, future developments in the litigation disclosed by VISA could require potentially significant changes to this estimate.  The carrying costs of required payments to the counterparty, calculated by reference to the market price of the Class A common shares at a fixed rate of interest, are expensed as incurred. These payments approximate $25 thousand per quarter; the pro-rata amount of $13 thousand was recorded in the quarter ended September 30, 2013.

The Company has pledged a U.S. Government agency security held in its available for sale portfolio, with a market value of approximately $1.4 million at September 30, 2013, as collateral for this transaction.

At September 30, 2013 the Company continued to own 88,638 VISA Class B shares subsequent to the sale described above.  These shares remain restricted because of the continuing uncertainty of the litigation pending against Visa, Inc.  Accordingly, the Company continues to record its VISA Class B shares at zero pending the outcome of the litigation. To the extent that the Company continues to own VISA Class B shares in the future, the Company expects to record the fair value of those shares upon expiration of the foregoing restriction. (See also Subsequent Event footnote contained herein.)

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FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 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 September 30, 2013 and December 31, 2012, its condensed consolidated statements of operations for the three and nine months ended September 30, 2013 and 2012, its condensed consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2013 and 2012, its condensed consolidated statements of stockholders’ equity for the nine months ended September 30, 2013 and 2012 and its condensed consolidated statements of cash flows for the nine months ended September 30, 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 and nine months ended September 30, 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. Loans of all classes will 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, after a well-documented analysis by management, it has been determined that 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.

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, multifamily, real estate construction, residential mortgages, 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 impaired 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. 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 third parties. Changes in fair value of loans held-for-sale are recognized in earnings.

Bank Owned Life Insurance - Bank owned life insurance is recorded at the lower of the cash surrender value or the amount that can be realized under the insurance policy and is included as an asset in the consolidated statements of condition. Changes in the cash surrender value and insurance benefit payments are recorded in non-interest income in the consolidated statements of operations.

Dividend Restriction - Banking regulations 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.)

Derivatives- Derivatives are contracts between two parties that specify conditions under which payments are to be made between the parties. The only derivative held by the Company relates to the swap agreement with the purchaser of VISA Class B shares, which provides for settlements between parties in the event that VISA makes subsequent revisions to the conversion ratio of VISA Class B shares to VISA Class A shares. The Company records its derivative on the balance sheet at fair value. Changes in fair value are recognized in earnings in the period of change. (See also Investment Securities, Fair Value and Subsequent Event footnotes contained herein.)

Recent Accounting Guidance – On July 18, 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-11, Income Taxes (Topic 740), “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” to clarify the balance sheet presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists.  The ASU requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Management intends to adopt ASU 2013-111 effective January 1, 2014, and does not believe that the adoption will have a material effect on the Company’s consolidated financial statements.

In February 2013, the FASB issued 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 consolidated results of operations or financial condition.

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LOANS, Loans and Allowance for Loan Losses by Risk Rating (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended			9 Months Ended
	Sep. 30, 2013		Sep. 30, 2012	Sep. 30, 2013		Sep. 30, 2012	Dec. 31, 2012
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	$ 22,577			$ 22,577			$ 16,435
Percentage of Total (in hundredths)	100.00%			100.00%			100.00%
Total Loans	999,329			999,329			780,780
Percentage of Total Loans (in hundredths)	2.30%			2.30%			2.10%
Additional interest income for the non-accrual loans outstanding at the end of the reported periods	208		237	894		1,300
Collateral value securing non-accrual loans [Abstract]
Non-accrual Loans principal balance	22,577			22,577			16,435
Non-accrual loans collateral value	33,232			33,232			26,726
Commercial and Industrial [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	9,947	[1]		9,947	[1]		6,529	[1]
Percentage of Total (in hundredths)	44.10%			44.10%			39.80%
Total Loans	172,386			172,386			168,709
Percentage of Total Loans (in hundredths)	1.00%			1.00%			0.80%
Collateral value securing non-accrual loans [Abstract]
Non-accrual Loans principal balance	9,947	[1]		9,947	[1]		6,529	[1]
Non-accrual loans collateral value	6,000	[1]		6,000	[1]		4,400	[1]
Commercial Real Estate [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	9,505			9,505			5,192
Percentage of Total (in hundredths)	42.10%			42.10%			31.60%
Total Loans	448,728			448,728			360,010
Percentage of Total Loans (in hundredths)	1.00%			1.00%			0.70%
Collateral value securing non-accrual loans [Abstract]
Non-accrual Loans principal balance	9,505			9,505			5,192
Non-accrual loans collateral value	17,785			17,785			12,675
Multifamily [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	0			0			0
Percentage of Total (in hundredths)	0.00%			0.00%			0.00%
Total Loans	136,983			136,983			9,261
Percentage of Total Loans (in hundredths)	0.00%			0.00%			0.00%
Collateral value securing non-accrual loans [Abstract]
Non-accrual Loans principal balance	0			0			0
Real Estate Construction [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	0			0			1,961
Percentage of Total (in hundredths)	0.00%			0.00%			11.90%
Total Loans	8,134			8,134			15,469
Percentage of Total Loans (in hundredths)	0.00%			0.00%			0.30%
Collateral value securing non-accrual loans [Abstract]
Non-accrual Loans principal balance	0			0			1,961
Non-accrual loans collateral value	0			0			3,661
Residential Mortgages [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	1,929			1,929			2,466
Percentage of Total (in hundredths)	8.50%			8.50%			15.00%
Total Loans	162,658			162,658			146,575
Percentage of Total Loans (in hundredths)	0.20%			0.20%			0.30%
Collateral value securing non-accrual loans [Abstract]
Non-accrual Loans principal balance	1,929			1,929			2,466
Non-accrual loans collateral value	4,347			4,347			5,141
Home Equity [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	1,063			1,063			266
Percentage of Total (in hundredths)	4.70%			4.70%			1.60%
Total Loans	59,100			59,100			66,468
Percentage of Total Loans (in hundredths)	0.10%			0.10%			0.00%
Collateral value securing non-accrual loans [Abstract]
Non-accrual Loans principal balance	1,063			1,063			266
Non-accrual loans collateral value	5,100			5,100			849
Consumer [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	133			133			21
Percentage of Total (in hundredths)	0.60%			0.60%			0.10%
Total Loans	11,340			11,340			14,288
Percentage of Total Loans (in hundredths)	0.00%			0.00%			0.00%
Collateral value securing non-accrual loans [Abstract]
Non-accrual Loans principal balance	133			133			21
Non-accrual loans collateral value	$ 0			$ 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.

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FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013 Corporation
Summary of Significant Accounting Policies [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

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Investment Securities, Securities Sales And Continuous Unrealized Loss Position Of Securities Held (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Proceeds from sales of securities available for sale and the associated realized securities gains and losses [Abstract]
Proceeds	$ 0	$ 3,584	$ 13,427	$ 3,584
Gross realized gains	3	0	395	0
Gross realized losses	0	162	0	162
Net gain (loss) on sale of securities available for sale	3	(162)	395	(162)
Length of time individual securities for held-to-maturity and available-for-sale held in a continuous unrealized loss position [Abstract]
Less than 12 months estimated fair value	214,930		214,930		50,934
Less than 12 months unrealized losses	11,849		11,849		223
12 months or longer estimated fair value	4,764		4,764		0
12 months or longer unrealized losses	79		79		0
Total estimated fair value	219,694		219,694		50,934
Total unrealized losses	11,928		11,928		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]
Less than 12 months estimated fair value	102,510		102,510		28,958
Less than 12 months unrealized losses	6,828		6,828		77
12 months or longer estimated fair value	0		0		0
12 months or longer unrealized losses	0		0		0
Total estimated fair value	102,510		102,510		28,958
Total unrealized losses	6,828		6,828		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]
Less than 12 months estimated fair value	8,900		8,900		7,878
Less than 12 months unrealized losses	660		660		80
12 months or longer estimated fair value	0		0		0
12 months or longer unrealized losses	0		0		0
Total estimated fair value	8,900		8,900		7,878
Total unrealized losses	660		660		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]
Less than 12 months estimated fair value	94,848		94,848		14,098
Less than 12 months unrealized losses	4,143		4,143		66
12 months or longer estimated fair value	4,764		4,764		0
12 months or longer unrealized losses	79		79		0
Total estimated fair value	99,612		99,612		14,098
Total unrealized losses	4,222		4,222		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]
Less than 12 months estimated fair value	8,672		8,672
Less than 12 months unrealized losses	218		218
12 months or longer estimated fair value	0		0
12 months or longer unrealized losses	0		0
Total estimated fair value	8,672		8,672
Total unrealized losses	$ 218		$ 218

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LOANS, Summary of Impaired Loans (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	$ 31,207		$ 31,207		$ 20,463
Impaired loans with an allowance recorded, Unpaid Principal Balance	4,919		4,919		8,802
Impaired loans, Unpaid Principal Balance, Total	36,126		36,126		29,265
Impaired loans with no allowance recorded, Recorded Investment	29,327		29,327		18,304
Impaired loans with an allowance recorded, Recorded Investment	4,791		4,791		8,652
Impaired Loans, Recorded Investment, Total	34,118		34,118		26,956
Impaired Loans, No Allowance Allocated	0		0		0
Impaired Loans, Allowance Allocated	1,574		1,574		1,024
Average recorded investment in impaired loans	27,660	64,943	28,499	103,931
Interest income recognized on impaired loans	428	385	925	1,382
Interest income recognized on a cash basis on impaired loans	0	0	0	0
Commercial and Industrial [Member]
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	13,999		13,999		7,913
Impaired loans with an allowance recorded, Unpaid Principal Balance	842		842		2,884
Impaired loans with no allowance recorded, Recorded Investment	12,795		12,795		7,492
Impaired loans with an allowance recorded, Recorded Investment	842		842		2,877
Impaired Loans, No Allowance Allocated	0		0		0
Impaired Loans, Allowance Allocated	343		343		340
Average recorded investment in impaired loans	12,695	19,946	12,799	27,660
Interest income recognized on impaired loans	47	58	279	373
Interest income recognized on a cash basis on impaired loans	0	0	0	0
Commercial Real Estate [Member]
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	14,255		14,255		8,859
Impaired loans with an allowance recorded, Unpaid Principal Balance	0		0		2,161
Impaired loans with no allowance recorded, Recorded Investment	13,719		13,719		7,282
Impaired loans with an allowance recorded, Recorded Investment	0		0		2,161
Impaired Loans, No Allowance Allocated	0		0		0
Impaired Loans, Allowance Allocated	0		0		22
Average recorded investment in impaired loans	8,406	24,146	8,635	48,318
Interest income recognized on impaired loans	224	209	369	468
Interest income recognized on a cash basis on impaired loans	0	0	0	0
Real Estate Construction [Member]
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	0		0		1,334
Impaired loans with an allowance recorded, Unpaid Principal Balance	0		0		656
Impaired loans with no allowance recorded, Recorded Investment	0		0		1,305
Impaired loans with an allowance recorded, Recorded Investment	0		0		656
Impaired Loans, No Allowance Allocated	0		0		0
Impaired Loans, Allowance Allocated	0		0		1
Average recorded investment in impaired loans	0	13,166	683	16,809
Interest income recognized on impaired loans	80	72	94	410
Interest income recognized on a cash basis on impaired loans	0	0	0	0
Residential Mortgages [Member]
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	2,113		2,113		1,918
Impaired loans with an allowance recorded, Unpaid Principal Balance	3,223		3,223		3,015
Impaired loans with no allowance recorded, Recorded Investment	1,984		1,984		1,788
Impaired loans with an allowance recorded, Recorded Investment	3,098		3,098		2,872
Impaired Loans, No Allowance Allocated	0		0		0
Impaired Loans, Allowance Allocated	761		761		575
Average recorded investment in impaired loans	5,202	4,973	5,098	7,202
Interest income recognized on impaired loans	73	42	167	127
Interest income recognized on a cash basis on impaired loans	0	0	0	0
Home Equity [Member]
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	821		821		418
Impaired loans with an allowance recorded, Unpaid Principal Balance	578		578		86
Impaired loans with no allowance recorded, Recorded Investment	821		821		416
Impaired loans with an allowance recorded, Recorded Investment	578		578		86
Impaired Loans, No Allowance Allocated	0		0		0
Impaired Loans, Allowance Allocated	395		395		86
Average recorded investment in impaired loans	1,174	2,360	1,092	3,396
Interest income recognized on impaired loans	4	4	8	4
Interest income recognized on a cash basis on impaired loans	0	0	0	0
Consumer [Member]
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	19		19		21
Impaired loans with an allowance recorded, Unpaid Principal Balance	276		276		0
Impaired loans with no allowance recorded, Recorded Investment	8		8		21
Impaired loans with an allowance recorded, Recorded Investment	273		273		0
Impaired Loans, No Allowance Allocated	0		0		0
Impaired Loans, Allowance Allocated	75		75		0
Average recorded investment in impaired loans	183	352	192	546
Interest income recognized on impaired loans	0	0	8	0
Interest income recognized on a cash basis on impaired loans	$ 0	$ 0	$ 0	$ 0

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FAIR VALUE, Recurring Basis (Details) (Fair Value, Measurements, Recurring [Member], USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Assets [Abstract]
Total	$ 416,933	$ 405,116
Liabilities [Abstract]
Derivatives	460
Total	460
US Treasury Securities [Member]
Assets [Abstract]
Total		500
U.S. Government Agency Securities [Member]
Assets [Abstract]
Total	102,510	65,078
Corporate Bonds [Member]
Assets [Abstract]
Total	15,609	16,198
Collateralized Mortgage Obligations [Member]
Assets [Abstract]
Total	36,264	89,692
Mortgage-backed Securities [Member]
Assets [Abstract]
Total	99,985	62,450
Obligations of States and Political Subdivisions [Member]
Assets [Abstract]
Total	159,783	168,435
Loans Held For Sale [Member]
Assets [Abstract]
Total	613	907
Mortgage Servicing Rights [Member]
Assets [Abstract]
Total	2,169	1,856
Significant Other Observable Inputs (Level 2) [Member]
Assets [Abstract]
Total	414,151	402,353
Liabilities [Abstract]
Derivatives	0
Total	0
Significant Other Observable Inputs (Level 2) [Member] | US Treasury Securities [Member]
Assets [Abstract]
Total		500
Significant Other Observable Inputs (Level 2) [Member] | U.S. Government Agency Securities [Member]
Assets [Abstract]
Total	102,510	65,078
Significant Other Observable Inputs (Level 2) [Member] | Corporate Bonds [Member]
Assets [Abstract]
Total	15,609	16,198
Significant Other Observable Inputs (Level 2) [Member] | Collateralized Mortgage Obligations [Member]
Assets [Abstract]
Total	36,264	89,692
Significant Other Observable Inputs (Level 2) [Member] | Mortgage-backed Securities [Member]
Assets [Abstract]
Total	99,985	62,450
Significant Other Observable Inputs (Level 2) [Member] | Obligations of States and Political Subdivisions [Member]
Assets [Abstract]
Total	159,783	168,435
Significant Other Observable Inputs (Level 2) [Member] | Loans Held For Sale [Member]
Assets [Abstract]
Total	0	0
Significant Other Observable Inputs (Level 2) [Member] | Mortgage Servicing Rights [Member]
Assets [Abstract]
Total	0	0
Significant Unobservable Inputs (Level 3) [Member]
Assets [Abstract]
Total	2,782	2,763
Liabilities [Abstract]
Derivatives	460
Total	460
Significant Unobservable Inputs (Level 3) [Member] | US Treasury Securities [Member]
Assets [Abstract]
Total		0
Significant Unobservable Inputs (Level 3) [Member] | U.S. Government Agency Securities [Member]
Assets [Abstract]
Total	0	0
Significant Unobservable Inputs (Level 3) [Member] | Corporate Bonds [Member]
Assets [Abstract]
Total	0	0
Significant Unobservable Inputs (Level 3) [Member] | Collateralized Mortgage Obligations [Member]
Assets [Abstract]
Total	0	0
Significant Unobservable Inputs (Level 3) [Member] | Mortgage-backed Securities [Member]
Assets [Abstract]
Total	0	0
Significant Unobservable Inputs (Level 3) [Member] | Obligations of States and Political Subdivisions [Member]
Assets [Abstract]
Total	0	0
Significant Unobservable Inputs (Level 3) [Member] | Loans Held For Sale [Member]
Assets [Abstract]
Total	613	907
Significant Unobservable Inputs (Level 3) [Member] | Mortgage Servicing Rights [Member]
Assets [Abstract]
Total	$ 2,169	$ 1,856

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EMPLOYEE BENEFITS (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Net periodic defined benefit pension expense [Abstract]
Service cost	$ 0	$ 603,000	$ 0	$ 1,809,000
Interest cost	499,000	555,000	1,495,000	1,664,000
Expected return on plan assets	(577,000)	(527,000)	(1,727,000)	(1,581,000)
Net amortization	62,000	406,000	184,000	1,220,000
Net periodic benefit expense	(16,000)	1,037,000	(48,000)	3,112,000
Minimum required contribution for the pension plan			1,000,000
Additional minimum required contribution for the pension plan			0
Non-recurring gain			$ 1,700,000

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CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED) [Abstract]
Held to maturity, fair value	$ 7,793	$ 8,861
Common Stock, par value (in dollars per share)	$ 2.50	$ 2.50
Common Stock, shares authorized (in shares)	15,000,000	15,000,000
Common Stock, shares issued (in shares)	13,738,752	13,732,085
Common Stock, shares outstanding (in shares)	11,573,014	11,566,347
Treasury Stock, shares (in shares)	2,165,738	2,165,738

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STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 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 248,000 had been granted as of September 30, 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 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. 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. No options were granted in 2010. Options granted prior to 2010 vest after one 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 September 30, 2013, there were 6,000 SARs outstanding related to options granted before 2011. The SARs had no intrinsic value at September 30, 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.

The total intrinsic value of options exercised for the nine months ended September 30, 2013 was $15 thousand. The total cash received from such option exercises was $92 thousand, excluding the tax benefit realized. In exercising those options, 6,667 new shares of the Company’s common stock were issued.

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		98,000		$	16.99
Exercised		(6,667	)	$	13.44
Forfeited or expired		(25,333	)	$	15.50
Outstanding, September 30, 2013		277,500		$	16.01

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

Black-Scholes Assumptions for Options Granted During the Nine Months Ended September 30, 2013:
Risk-free interest rate	1.19	%
Expected dividend yield	-
Expected life in years	10
Expected volatility	43.00	%

The following summarizes shares subject to purchase from stock options outstanding and exercisable as of September 30, 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
$	10.00 - $14.00		140,000	8.4 years	$	12.01		30,002	8.5 years	$	12.68
$	14.01 - $20.00		108,000	9.7 years	$	16.80		3,334	9.0 years	$	14.97
$	20.01 - $30.00		5,000	5.3 years	$	28.30		5,000	5.3 years	$	28.30
$	30.01 - $40.00		24,500	2.6 years	$	32.87		24,500	2.6 years	$	32.87
			277,500	8.3 years	$	16.01		62,836	6.0 years	$	21.92

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 $367 thousand and $304 thousand for the nine months ended September 30, 2013 and 2012, respectively. The remaining unrecognized compensation cost of approximately $1.0 million at September 30, 2013 will be expensed over the remaining weighted average vesting period of approximately 2.6 years.

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) [Abstract]
Net income (loss)	$ 3,912	$ (9,161)	$ 9,390	$ (3,793)
Other comprehensive (loss) income, net of taxes and reclassification adjustments:
Net change in unrealized (loss) gain on securities available for sale arising during the period	(1,445)	3,479	(11,887)	819
Pension and post-retirement plan benefit obligation	0	(1,116)	(277)	(1,371)
Total other comprehensive (loss) income, net of taxes	(1,445)	2,363	(12,164)	(552)
Total comprehensive income (loss)	$ 2,467	$ (6,798)	$ (2,774)	$ (4,345)

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CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Cash and cash equivalents
Cash and non-interest bearing deposits due from banks	$ 62,139	$ 80,436
Interest-bearing deposits due from banks	147,497	304,220
Federal funds sold	1,000	1,150
Total cash and cash equivalents	210,636	385,806
Interest-bearing time deposits in other banks	10,000	0
Federal Reserve Bank, Federal Home Loan Bank and other stock	2,916	3,043
Investment securities:
Available for sale, at fair value	414,151	402,353
Held to maturity (fair value of $7,793 and $8,861, respectively)	7,150	8,035
Total investment securities	421,301	410,388
Loans	999,329	780,780
Allowance for loan losses	17,619	17,781
Net loans	981,710	762,999
Loans held-for-sale	613	907
Premises and equipment, net	26,352	27,656
Bank owned life insurance	38,399	0
Deferred taxes	15,731	11,385
Income tax receivable	5,043	5,406
Other real estate owned ("OREO")	0	1,572
Accrued interest and loan fees receivable	5,966	4,883
Goodwill and other intangibles	2,983	2,670
Other assets	3,412	5,749
TOTAL ASSETS	1,725,062	1,622,464
LIABILITIES & STOCKHOLDERS' EQUITY
Demand deposits	649,572	615,120
Saving, N.O.W. & money market deposits	650,785	572,263
Time certificates of $100,000 or more	168,001	165,731
Other time deposits	68,892	78,000
Total deposits	1,537,250	1,431,114
Unfunded pension liability	7,733	7,781
Capital leases	4,635	4,688
Other liabilities	13,774	14,896
TOTAL LIABILITIES	1,563,392	1,458,479
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock (par value $2.50; 15,000,000 shares authorized; 13,738,752 shares and 13,732,085 shares issued at September 30, 2013 and December 31, 2012, respectively; 11,573,014 shares and 11,566,347 shares outstanding at September 30, 2013 and December 31, 2012, respectively)	34,348	34,330
Surplus	43,069	42,628
Retained earnings	98,945	89,555
Treasury stock at par (2,165,738 shares)	(5,414)	(5,414)
Accumulated other comprehensive (loss) income, net of tax	(9,278)	2,886
TOTAL STOCKHOLDERS' EQUITY	161,670	163,985
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY	$ 1,725,062	$ 1,622,464

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FAIR VALUE, Non-recurring Basis (Details) (Fair Value, Measurements, Nonrecurring [Member], USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Assets measured at fair value on a non-recurring basis [Abstract]
Impaired loans	$ 20,117	$ 9,390
OREO		1,572
Total	20,117	10,962
Significant Unobservable Inputs (Level 3) [Member]
Assets measured at fair value on a non-recurring basis [Abstract]
Impaired loans	20,117	9,390
OREO		1,572
Total	$ 20,117	$ 10,962

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ACCUMULATED OTHER COMPREHENSIVE INCOME (AOCI) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Accumulated Other Comprehensive Income [Roll Forward]
Beginning balance	$ (7,833)	$ (5,985)	$ 2,886	$ (3,070)
Other comprehensive loss (income) before reclassifications	(1,443)	2,260	(11,912)	(655)
Amounts reclassified from AOCI	(2)	103	(252)	103
Net other comprehensive loss (income)	(1,445)	2,363	(12,164)	(552)
Ending balance	(9,278)	(3,622)	(9,278)	(3,622)
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Net gain (loss) on sale of securities available for sale	3	(162)	395	(162)
Income tax expense (benefit)	1,557	(3,975)	2,856	(1,945)
Total reclassifications, net of tax	2	(103)	252	(103)
Unrealized gains and Losses on available-for-sale securities [Member]
Accumulated Other Comprehensive Income [Roll Forward]
Beginning balance	111	9,213	10,553	11,873
Other comprehensive loss (income) before reclassifications	(1,443)	3,376	(11,635)	716
Amounts reclassified from AOCI	(2)	103	(252)	103
Net other comprehensive loss (income)	(1,445)	3,479	(11,887)	819
Ending balance	(1,334)	12,692	(1,334)	12,692
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Net gain (loss) on sale of securities available for sale	3		395
Income tax expense (benefit)	(1)		(143)
Total reclassifications, net of tax	2	(103)	252	(103)
Pension and postretirement plan items [Member]
Accumulated Other Comprehensive Income [Roll Forward]
Beginning balance	(7,944)	(15,198)	(7,667)	(14,943)
Other comprehensive loss (income) before reclassifications	0	(1,116)	(277)	(1,371)
Amounts reclassified from AOCI	0	0	0	0
Net other comprehensive loss (income)	0	(1,116)	(277)	(1,371)
Ending balance	(7,944)	(16,314)	(7,944)	(16,314)
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Total reclassifications, net of tax	$ 0	$ 0	$ 0	$ 0

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LOANS (Tables)

9 Months Ended

Sep. 30, 2013

LOANS [Abstract]

Categorizes total loans

At September 30, 2013 and December 31, 2012, net loans disaggregated by class consisted of the following (in thousands):

	September 30, 2013			December 31, 2012
Commercial and industrial	$	172,386		$	168,709
Commercial real estate		448,728			360,010
Multifamily		136,983			9,261
Real estate construction		8,134			15,469
Residential mortgages		162,658			146,575
Home equity		59,100			66,468
Consumer		11,340			14,288
Gross loans		999,329			780,780
Allowance for loan losses		(17,619	)		(17,781	)
Net loans at end of period	$	981,710		$	762,999

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

For the three and nine months ended September 30, 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			Multifamily			Real estate construction			Residential mortgages			Home equity			Consumer			Unallocated		Total
Three months ended September 30, 2013
Balance at beginning of period	$	4,778		$	6,701		$	529		$	278		$	2,341		$	1,059		$	247		$	1,360	$	17,293
Charge-offs		(60	)		(70	)		-			-			-			-			(11	)		-		(141	)
Recoveries		390			12			-			-			4			5			56			-		467
(Credit) provision for loan losses		(1,870	)		485			903			(4	)		218			17			(59	)		310		-
Balance at end of period	$	3,238		$	7,128		$	1,432		$	274		$	2,563		$	1,081		$	233		$	1,670	$	17,619
Three months ended September 30, 2012
Balance at beginning of period	$	15,082		$	8,088		$	93		$	163		$	1,634		$	2,008		$	176		$	1,983	$	29,227
Charge-offs		(6,689	)		(8,102	)		-			(2,123	)		(2,885	)		(1,360	)		(179	)		-		(21,338	)
Recoveries		462			-			-			260			112			246			52			-		1,132
(Credit) provision for loan losses		(327	)		6,752			(41	)		1,762			2,289			449			121			995		12,000
Balance at end of period	$	8,528		$	6,738		$	52		$	62		$	1,150		$	1,343		$	170		$	2,978	$	21,021

	Commercial and industrial			Commercial real estate			Multifamily			Real estate construction			Residential mortgages			Home equity			Consumer			Unallocated			Total
Nine months ended September 30, 2013
Balance at beginning of period	$	6,181		$	5,999		$	150		$	141		$	1,576		$	907		$	189		$	2,638		$	17,781
Charge-offs		(1,687	)		(70	)		-			-			(74	)		-			(133	)		-			(1,964	)
Recoveries		1,600			85			-			-			5			7			105			-			1,802
(Credit) provision for loan losses		(2,856	)		1,114			1,282			133			1,056			167			72			(968	)		-
Balance at end of period	$	3,238		$	7,128		$	1,432		$	274		$	2,563		$	1,081		$	233		$	1,670		$	17,619
Nine months ended September 30, 2012
Balance at beginning of period	$	25,047		$	10,470		$	559		$	623		$	2,401		$	512		$	313		$	33		$	39,958
Charge-offs		(7,816	)		(15,794	)		-			(2,123	)		(3,473	)		(1,953	)		(261	)		-			(31,420	)
Recoveries		2,086			-			-			340			114			246			97			-			2,883
(Credit) provision for loan losses		(10,789	)		12,062			(507	)		1,222			2,108			2,538			21			2,945			9,600
Balance at end of period	$	8,528		$	6,738		$	52		$	62		$	1,150		$	1,343		$	170		$	2,978		$	21,021

Additional information of allowance for loan losses

At September 30, 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 September 30, 2013 and December 31, 2012 disaggregated by class and impairment methodology (in thousands).

September 30, 2013	Commercial and industrial		Commercial real estate		Multifamily		Real estate construction		Residential mortgages		Home equity		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	343	$	-	$	-	$	-	$	761	$	395	$	75	$	-	$	1,574
Ending balance: collectively evaluated for impairment		2,895		7,128		1,432		274		1,802		686		158		1,670		16,045
Ending balance	$	3,238	$	7,128	$	1,432	$	274	$	2,563	$	1,081	$	233	$	1,670	$	17,619
Loan balances:
Ending balance: individually evaluated for impairment	$	13,637	$	13,719	$	-	$	-	$	5,082	$	1,399	$	281	$	-	$	34,118
Ending balance: collectively evaluated for impairment		158,749		435,009		136,983		8,134		157,576		57,701		11,059		-		965,211
Ending balance	$	172,386	$	448,728	$	136,983	$	8,134	$	162,658	$	59,100	$	11,340	$	-	$	999,329

December 31, 2012	Commercial and industrial		Commercial real estate		Multifamily		Real estate construction		Residential mortgages		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		5,977		150		140		1,001		821		189		2,638		16,757
Ending balance	$	6,181	$	5,999	$	150	$	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		350,567		9,261		13,508		141,915		65,966		14,267		-		753,824
Ending balance	$	168,709	$	360,010	$	9,261	$	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 September 30, 2013 and December 31, 2012 (in thousands):

	September 30, 2013						December 31, 2012
	Unpaid Principal Balance		Recorded Balance		Allowance Allocated		Unpaid Principal Balance		Recorded Balance		Allowance  Allocated
With no allowance recorded:
Commercial and industrial	$	13,999	$	12,795	$	-	$	7,913	$	7,492	$	-
Commercial real estate		14,255		13,719		-		8,859		7,282		-
Real estate construction		-		-		-		1,334		1,305		-
Residential mortgages		2,113		1,984		-		1,918		1,788		-
Home equity		821		821		-		418		416		-
Consumer		19		8		-		21		21		-
Subtotal		31,207		29,327		-		20,463		18,304		-
With an allowance recorded:
Commercial and industrial		842		842		343		2,884		2,877		340
Commercial real estate		-		-		-		2,161		2,161		22
Real estate construction		-		-		-		656		656		1
Residential mortgages		3,223		3,098		761		3,015		2,872		575
Home equity		578		578		395		86		86		86
Consumer		276		273		75		-		-		-
Subtotal		4,919		4,791		1,574		8,802		8,652		1,024
Total	$	36,126	$	34,118	$	1,574	$	29,265	$	26,956	$	1,024

Shown below is additional information pertaining to the Company’s impaired loans disaggregated by class for the three and nine months ended September 30, 2013 and 2012 (in thousands):

	Three Months Ended September 30, 2013						Three Months Ended September 30, 2012
	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	$	12,695	$	47	$	-	$	19,946	$	58	$	-
Commercial real estate		8,406		224		-		24,146		209		-
Real estate construction		-		80		-		13,166		72		-
Residential mortgages		5,202		73		-		4,973		42		-
Home equity		1,174		4		-		2,360		4		-
Consumer		183		-		-		352		-		-
Total	$	27,660	$	428	$	-	$	64,943	$	385	$	-

	Nine Months Ended September 30, 2013						Nine Months Ended September 30, 2012
	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	$	12,799	$	279	$	-	$	27,660	$	373	$	-
Commercial real estate		8,635		369		-		48,318		468		-
Real estate construction		683		94		-		16,809		410		-
Residential mortgages		5,098		167		-		7,202		127		-
Home equity		1,092		8		-		3,396		4		-
Consumer		192		8		-		546		-		-
Total	$	28,499	$	925	$	-	$	103,931	$	1,382	$	-

Troubled debt restructurings

The following tables (dollars in thousands) present certain information regarding outstanding TDRs at September 30, 2013 and December 31, 2012, TDRs executed during the three and nine months ended September 30, 2013 and 2012 and TDRs with payment defaults of 90 days or more within twelve months of restructuring during the nine months ended September 30, 2013 and 2012. There were no such payment defaults during the three months ended September 30, 2013 and 2012.

	September 30, 2013				December 31, 2012
Total TDRs	Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance
Commercial and industrial		42	$	5,934		41	$	6,468
Commercial real estate		7		4,933		9		6,238
Residential mortgages		17		3,922		15		3,587
Consumer		4		161		5		311
		70	$	14,950		70	$	16,604

	Three months ended September 30, 2013						Three months ended September 30, 2012
			Pre-Modification		Post-Modification				Pre-Modification		Post-Modification
	Number		Outstanding		Outstanding		Number		Outstanding		Outstanding
	of		Recorded		Recorded		of		Recorded		Recorded
New TDRs	Loans		Balance		Balance		Loans		Balance		Balance
Commercial and industrial		1	$	228	$	228		3	$	815	$	815
Residential mortgages		1		19		19		-		-		-
		2	$	247	$	247		3	$	815	$	815

	Nine months ended September 30, 2013						Nine months ended September 30, 2012
			Pre-Modification		Post-Modification				Pre-Modification		Post-Modification
	Number		Outstanding		Outstanding		Number		Outstanding		Outstanding
	of		Recorded		Recorded		of		Recorded		Recorded
New TDRs	Loans		Balance		Balance		Loans		Balance		Balance
Commercial and industrial		5	$	1,120	$	1,120		13	$	5,920	$	5,920
Residential mortgages		4		924		924		1		81		81
Consumer		1		17		17		1		49		49
		10	$	2,061	$	2,061		15	$	6,050	$	6,050

	Nine months ended September 30, 2013				Nine months ended September 30, 2012
			Outstanding				Outstanding
	Number		Recorded		Number		Recorded
Defaulted TDRs	of Loans		Balance		of Loans		Balance
Commercial and industrial		-	$	-		2	$	1,200
		-	$	-		2	$	1,200

Summary of loans modified and renewed and not considered TDRs

Information regarding modifications and renewals executed during the three and nine months ended September 30, 2013 and 2012 that are not considered TDRs is shown below (dollars in thousands):

	Three months ended September 30, 2013				Three months ended September 30, 2012
			Outstanding				Outstanding
	Number		Recorded		Number		Recorded
Non-TDR Modifications	of Loans		Balance		of Loans		Balance
Commercial and industrial		11	$	2,240		2	$	1,325
Commercial real estate		11		6,367		6		5,008
Multifamily		1		410		-		-
		23	$	9,017		8	$	6,333

	Nine months ended September 30, 2013				Nine months ended September 30, 2012
			Outstanding				Outstanding
	Number		Recorded		Number		Recorded
Non-TDR Modifications	of Loans		Balance		of Loans		Balance
Commercial and industrial		19	$	6,741		8	$	3,863
Commercial real estate		31		32,485		15		15,123
Multifamily		1		410		-		-
		51	$	39,636		23	$	18,986

Summary of non-performing assets

The following is a summary of information pertaining to non-performing assets at September 30, 2013 and December 31, 2012 (in thousands):

	September 30, 2013		December 31, 2012
Non-accrual loans	$	22,577	$	16,435
Non-accrual loans held-for-sale		-		907
Loans 90 days past due and still accruing		-		-
OREO		-		1,572
Total non-performing assets	$	22,577	$	18,914
TDRs accruing interest	$	10,024	$	9,954
TDRs non-accruing	$	4,926	$	6,650

Summarizes non-accrual loans by loan class

The following table summarizes non-accrual loans by loan class at September 30, 2013 and December 31, 2012 (dollars in thousands):

	September 30, 2013										December 31, 2012
	Non- accrual loans		% of Total			Total Loans		% of Total Loans			Non- accrual loans		% of Total			Total Loans		% of Total Loans
Commercial and industrial	$	9,947		44.1	%	$	172,386		1.0	%	$	6,529		39.8	%	$	168,709		0.8	%
Commercial real estate		9,505		42.1			448,728		1.0			5,192		31.6			360,010		0.7
Multifamily		-		-			136,983		-			-		-			9,261		-
Real estate construction		-		-			8,134		-			1,961		11.9			15,469		0.3
Residential mortgages		1,929		8.5			162,658		0.2			2,466		15.0			146,575		0.3
Home equity		1,063		4.7			59,100		0.1			266		1.6			66,468		-
Consumer		133		0.6			11,340		-			21		0.1			14,288		-
Total	$	22,577		100.0	%	$	999,329		2.3	%	$	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 September 30, 2013 and December 31, 2012 (in thousands):

	September 30, 2013				December 31, 2012
	Principal Balance		Collateral Value		Principal Balance		Collateral Value
Commercial and industrial (1)	$	9,947	$	6,000	$	6,529	$	4,400
Commercial real estate		9,505		17,785		5,192		12,675
Real estate construction		-		-		1,961		3,661
Residential mortgages		1,929		4,347		2,466		5,141
Home equity		1,063		5,100		266		849
Consumer		133		-		21		-
Total	$	22,577	$	33,232	$	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 September 30, 2013 and December 31, 2012, past due loans disaggregated by class were as follows (in thousands):

	Past Due
September 30, 2013	30 - 59 days			60 - 89 days			90 days and over			Total			Current			Total
Commercial and industrial	$	86		$	-		$	9,947		$	10,033		$	162,353		$	172,386
Commercial real estate		-			639			9,505			10,144			438,584			448,728
Multifamily		-			-			-			-			136,983			136,983
Real estate construction		-			-			-			-			8,134			8,134
Residential mortgages		1,465			761			1,929			4,155			158,503			162,658
Home equity		1,527			143			1,063			2,733			56,367			59,100
Consumer		18			-			133			151			11,189			11,340
Total	$	3,096		$	1,543		$	22,577		$	27,216		$	972,113		$	999,329
% of Total Loans		0.3	%		0.1	%		2.3	%		2.7	%		97.3	%		100.0	%

	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			353,344			360,010
Multifamily		-			-			-			-			9,261			9,261
Real estate construction		1,382			-			1,961			3,343			12,126			15,469
Residential mortgages		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
% of Total Loans		1.6	%		0.2	%		2.1	%		3.9	%		96.1	%		100.0	%

Credit risk profile by internally assigned grade

At September 30, 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):

September 30, 2013	Commercial and  industrial		Commercial real estate		Multifamily		Real estate construction		Residential mortgages		Home equity		Consumer		Total		% of Total
Grade:
Pass	$	150,149	$	413,226	$	136,983	$	8,134	$	157,634	$	57,951	$	11,054	$	935,131		93.6	%
Special mention		2,707		8,988		-		-		-		-		-		11,695		1.2
Substandard		19,530		26,514		-		-		5,024		1,149		286		52,503		5.2
Total	$	172,386	$	448,728	$	136,983	$	8,134	$	162,658	$	59,100	$	11,340	$	999,329		100.0	%

December 31, 2012	Commercial and industrial		Commercial real estate		Multifamily		Real estate construction		Residential  mortgages		Home equity		Consumer		Total		% of Total
Grade:
Pass	$	143,804	$	301,862	$	9,261	$	4,790	$	141,915	$	65,966	$	14,267	$	681,865		87.3	%
Special mention		5,995		38,670		-		-		-		-		-		44,665		5.7
Substandard		18,910		19,478		-		10,679		4,660		502		21		54,250		7.0
Total	$	168,709	$	360,010	$	9,261	$	15,469	$	146,575	$	66,468	$	14,288	$	780,780		100.0	%

XML

LOANS (Details Textual) (USD $)	9 Months Ended
	Sep. 30, 2013	Jun. 30, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Dec. 31, 2011
Allowance for loan losses (Textual) [Abstract]
Allowance for Loan Losses	$ 17,619,000	$ 17,293,000	$ 17,781,000	$ 21,021,000	$ 29,227,000	$ 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	910,000		800,000
Troubled debt restructuring funds committed	43,000		35,000
Minimum repayment period	2 years
Commercial and Industrial [Member]
Allowance for loan losses (Textual) [Abstract]
Allowance for Loan Losses	$ 3,238,000	$ 4,778,000	$ 6,181,000	$ 8,528,000	$ 15,082,000	$ 25,047,000

XML

LOANS, Loans Modified or Renewed (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013 Loan	Sep. 30, 2012 Loan	Sep. 30, 2013 Loan	Sep. 30, 2012 Loan
Financing Receivable, Modifications [Line Items]
Number of loans	23	8	51	23
Outstanding recorded balance	$ 9,017	$ 6,333	$ 39,636	$ 18,986
Commercial and Industrial [Member]
Financing Receivable, Modifications [Line Items]
Number of loans	11	2	19	8
Outstanding recorded balance	2,240	1,325	6,741	3,863
Commercial Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Number of loans	11	6	31	15
Outstanding recorded balance	6,367	5,008	32,485	15,123
Multifamily [Member]
Financing Receivable, Modifications [Line Items]
Number of loans	1	0	1	0
Outstanding recorded balance	$ 410	$ 0	$ 410	$ 0

XML

LOANS, Analysis of Changes in the Allowances for Loan Losses (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Allowance for loan losses [Abstract]
Balance, Beginning of Period	$ 17,293,000	$ 29,227,000	$ 17,781,000	$ 39,958,000
Charge-offs	(141,000)	(21,338,000)	(1,964,000)	(31,420,000)
Recoveries	467,000	1,132,000	1,802,000	2,883,000
Provision for loan losses	0	12,000,000	0	9,600,000
Balance, End of Period	17,619,000	21,021,000	17,619,000	21,021,000
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		250,000
Allowance for loan and lease losses, period increase (decrease)	326,000
Commercial and Industrial [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	4,778,000	15,082,000	6,181,000	25,047,000
Charge-offs	(60,000)	(6,689,000)	(1,687,000)	(7,816,000)
Recoveries	390,000	462,000	1,600,000	2,086,000
Provision for loan losses	(1,870,000)	(327,000)	(2,856,000)	(10,789,000)
Balance, End of Period	3,238,000	8,528,000	3,238,000	8,528,000
Allowance for loan and lease losses, period increase (decrease)	(1,500,000)
Period increase (decrease) in specific reserves	(34,000)
Increase (decrease) in historical loss factors (in basis points)	(84)
Commercial and Industrial [Member] | Unimpaired Pass Rated Loans [Member]
Allowance for loan losses [Abstract]
Period increase (decrease) in balance of unimpaired pass rated loans	(5,000,000)
Commercial Real Estate [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	6,701,000	8,088,000	5,999,000	10,470,000
Charge-offs	(70,000)	(8,102,000)	(70,000)	(15,794,000)
Recoveries	12,000	0	85,000	0
Provision for loan losses	485,000	6,752,000	1,114,000	12,062,000
Balance, End of Period	7,128,000	6,738,000	7,128,000	6,738,000
Allowance for loan and lease losses, period increase (decrease)	427,000
Commercial Real Estate [Member] | Unimpaired Pass Rated Loans [Member]
Allowance for loan losses [Abstract]
Period increase (decrease) in balance of unimpaired pass rated loans	34,000,000
Multifamily [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	529,000	93,000	150,000	559,000
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision for loan losses	903,000	(41,000)	1,282,000	(507,000)
Balance, End of Period	1,432,000	52,000	1,432,000	52,000
Allowance for loan and lease losses, period increase (decrease)	903,000
Multifamily [Member] | Unimpaired Pass Rated Loans [Member]
Allowance for loan losses [Abstract]
Period increase (decrease) in balance of unimpaired pass rated loans	79,000,000
Real Estate Construction [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	278,000	163,000	141,000	623,000
Charge-offs	0	(2,123,000)	0	(2,123,000)
Recoveries	0	260,000	0	340,000
Provision for loan losses	(4,000)	1,762,000	133,000	1,222,000
Balance, End of Period	274,000	62,000	274,000	62,000
Residential Mortgages [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	2,341,000	1,634,000	1,576,000	2,401,000
Charge-offs	0	(2,885,000)	(74,000)	(3,473,000)
Recoveries	4,000	112,000	5,000	114,000
Provision for loan losses	218,000	2,289,000	1,056,000	2,108,000
Balance, End of Period	2,563,000	1,150,000	2,563,000	1,150,000
Home Equity [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	1,059,000	2,008,000	907,000	512,000
Charge-offs	0	(1,360,000)	0	(1,953,000)
Recoveries	5,000	246,000	7,000	246,000
Provision for loan losses	17,000	449,000	167,000	2,538,000
Balance, End of Period	1,081,000	1,343,000	1,081,000	1,343,000
Consumer [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	247,000	176,000	189,000	313,000
Charge-offs	(11,000)	(179,000)	(133,000)	(261,000)
Recoveries	56,000	52,000	105,000	97,000
Provision for loan losses	(59,000)	121,000	72,000	21,000
Balance, End of Period	233,000	170,000	233,000	170,000
Unallocated [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	1,360,000	1,983,000	2,638,000	33,000
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision for loan losses	310,000	995,000	(968,000)	2,945,000
Balance, End of Period	$ 1,670,000	$ 2,978,000	$ 1,670,000	$ 2,978,000

XML

LOANS, Loans and Allowance for Loan Losses Impairment Evaluations (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Jun. 30, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Dec. 31, 2011
Allowance for loan losses: [Abstract]
Ending balance: individually evaluated for impairment	$ 1,574		$ 1,024
Ending balance: collectively evaluated for impairment	16,045		16,757
Balance, End of Period	17,619	17,293	17,781	21,021	29,227	39,958
Loan balances: [Abstract]
Ending balance: individually evaluated for impairment	34,118		26,956
Ending balance: collectively evaluated for impairment	965,211		753,824
Ending balance (loan portfolio)	999,329		780,780
Commercial and Industrial [Member]
Allowance for loan losses: [Abstract]
Ending balance: individually evaluated for impairment	343		340
Ending balance: collectively evaluated for impairment	2,895		5,841
Balance, End of Period	3,238	4,778	6,181	8,528	15,082	25,047
Loan balances: [Abstract]
Ending balance: individually evaluated for impairment	13,637		10,369
Ending balance: collectively evaluated for impairment	158,749		158,340
Ending balance (loan portfolio)	172,386		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	7,128		5,977
Balance, End of Period	7,128	6,701	5,999	6,738	8,088	10,470
Loan balances: [Abstract]
Ending balance: individually evaluated for impairment	13,719		9,443
Ending balance: collectively evaluated for impairment	435,009		350,567
Ending balance (loan portfolio)	448,728		360,010
Multifamily [Member]
Allowance for loan losses: [Abstract]
Ending balance: individually evaluated for impairment	0		0
Ending balance: collectively evaluated for impairment	1,432		150
Balance, End of Period	1,432	529	150	52	93	559
Loan balances: [Abstract]
Ending balance: individually evaluated for impairment	0		0
Ending balance: collectively evaluated for impairment	136,983		9,261
Ending balance (loan portfolio)	136,983		9,261
Real Estate Construction [Member]
Allowance for loan losses: [Abstract]
Ending balance: individually evaluated for impairment	0		1
Ending balance: collectively evaluated for impairment	274		140
Balance, End of Period	274	278	141	62	163	623
Loan balances: [Abstract]
Ending balance: individually evaluated for impairment	0		1,961
Ending balance: collectively evaluated for impairment	8,134		13,508
Ending balance (loan portfolio)	8,134		15,469
Residential Mortgages [Member]
Allowance for loan losses: [Abstract]
Ending balance: individually evaluated for impairment	761		575
Ending balance: collectively evaluated for impairment	1,802		1,001
Balance, End of Period	2,563	2,341	1,576	1,150	1,634	2,401
Loan balances: [Abstract]
Ending balance: individually evaluated for impairment	5,082		4,660
Ending balance: collectively evaluated for impairment	157,576		141,915
Ending balance (loan portfolio)	162,658		146,575
Home Equity [Member]
Allowance for loan losses: [Abstract]
Ending balance: individually evaluated for impairment	395		86
Ending balance: collectively evaluated for impairment	686		821
Balance, End of Period	1,081	1,059	907	1,343	2,008	512
Loan balances: [Abstract]
Ending balance: individually evaluated for impairment	1,399		502
Ending balance: collectively evaluated for impairment	57,701		65,966
Ending balance (loan portfolio)	59,100		66,468
Consumer [Member]
Allowance for loan losses: [Abstract]
Ending balance: individually evaluated for impairment	75		0
Ending balance: collectively evaluated for impairment	158		189
Balance, End of Period	233		189
Loan balances: [Abstract]
Ending balance: individually evaluated for impairment	281		21
Ending balance: collectively evaluated for impairment	11,059		14,267
Ending balance (loan portfolio)	11,340		14,288
Unallocated [Member]
Allowance for loan losses: [Abstract]
Ending balance: individually evaluated for impairment	0		0
Ending balance: collectively evaluated for impairment	1,670		2,638
Balance, End of Period	1,670	1,360	2,638	2,978	1,983	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

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EMPLOYEE BENEFITS

9 Months Ended

Sep. 30, 2013

EMPLOYEE BENEFITS [Abstract]

EMPLOYEE BENEFITS

5. EMPLOYEE BENEFITS

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 (income) expense for the three and nine months ended September 30, 2013 and 2012 (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Service cost	$	-		$	603		$	-		$	1,809
Interest cost		499			555			1,495			1,664
Expected return on plan assets		(577	)		(527	)		(1,727	)		(1,581	)
Net amortization		62			406			184			1,220
Net periodic benefit (income) expense	$	(16	)	$	1,037		$	(48	)	$	3,112

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

Post-Retirement Benefits other than Pension - The Company formerly provided life insurance benefits to employees meeting eligibility requirements. Employees hired after December 31, 1997 were not eligible for retiree life insurance. No other welfare benefits are provided. In the second quarter of 2013, the Company terminated all post-retirement life insurance benefits and recorded a non-recurring gain of $1.7 million as a credit to employee compensation and benefits expense in the Company’s consolidated statements of operations.

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Investment Securities, Amortized Cost, Estimated Values and Gross Unrealized Gains and Losses (Details) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Available for sale [Abstract]
Amortized Cost	$ 416,245,000	$ 385,781,000
Gross Unrealized Gains	9,834,000	16,795,000
Gross Unrealized Losses	(11,928,000)	(223,000)
Estimated Fair Value	414,151,000	402,353,000
Held to maturity [Abstract]
Estimated Fair Value	7,793,000	8,861,000
Total investment securities [Abstract]
Total Amortized Cost	423,395,000	393,816,000
Total Gross Unrealized Gains	10,477,000	17,621,000
Total Gross Unrealized Losses	(11,928,000)	(223,000)
Total Fair Value	421,944,000	411,214,000
Investment securities pledged	273,000,000	286,000,000
Obligations of States and Political Subdivisions [Member]
Held to maturity [Abstract]
Amortized Cost	7,150,000	8,035,000
Gross Unrealized Gains	643,000	826,000
Gross Unrealized Losses	0	0
Estimated Fair Value	7,793,000	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	109,338,000	65,085,000
Gross Unrealized Gains	0	70,000
Gross Unrealized Losses	(6,828,000)	(77,000)
Estimated Fair Value	102,510,000	65,078,000
Obligations of States and Political Subdivisions [Member]
Available for sale [Abstract]
Amortized Cost	150,955,000	155,121,000
Gross Unrealized Gains	8,828,000	13,314,000
Gross Unrealized Losses	0	0
Estimated Fair Value	159,783,000	168,435,000
Collateralized Mortgage Obligations [Member]
Available for sale [Abstract]
Amortized Cost	36,208,000	87,624,000
Gross Unrealized Gains	716,000	2,148,000
Gross Unrealized Losses	(660,000)	(80,000)
Estimated Fair Value	36,264,000	89,692,000
Mortgage-Backed Securities [Member]
Available for sale [Abstract]
Amortized Cost	104,176,000	61,750,000
Gross Unrealized Gains	31,000	766,000
Gross Unrealized Losses	(4,222,000)	(66,000)
Estimated Fair Value	99,985,000	62,450,000
Corporate Bonds [Member]
Available for sale [Abstract]
Amortized Cost	15,568,000	15,701,000
Gross Unrealized Gains	259,000	497,000
Gross Unrealized Losses	(218,000)	0
Estimated Fair Value	$ 15,609,000	$ 16,198,000

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LOANS, Loans Current and Past Due by Aging Categories (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Summary of current and past due loans [Abstract]
30-59 days past due	$ 3,096	$ 12,435
60-89 days past due	1,543	1,727
90 days and over past due	22,577	16,435
Total past due	27,216	30,597
Current	972,113	750,183
Total loans	999,329	780,780
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due (in hundredths)	0.30%	1.60%
Financing Receivable, Recorded Investment, 60 to 89 Days Past Due (in hundredths)	0.10%	0.20%
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due (in hundredths)	2.30%	2.10%
Financing Receivable, Recorded Investment, Past Due (in hundredths)	2.70%	3.90%
Financing Receivable, Recorded Investment, Current (in hundredths)	97.30%	96.10%
Total (in hundredth)	100.00%	100.00%
Commercial and Industrial [Member]
Summary of current and past due loans [Abstract]
30-59 days past due	86	6,591
60-89 days past due	0	1,274
90 days and over past due	9,947	6,529
Total past due	10,033	14,394
Current	162,353	154,315
Total loans	172,386	168,709
Commercial Real Estate [Member]
Summary of current and past due loans [Abstract]
30-59 days past due	0	1,145
60-89 days past due	639	329
90 days and over past due	9,505	5,192
Total past due	10,144	6,666
Current	438,584	353,344
Total loans	448,728	360,010
Multifamily [Member]
Summary of current and past due loans [Abstract]
30-59 days past due	0	0
60-89 days past due	0	0
90 days and over past due	0	0
Total past due	0	0
Current	136,983	9,261
Total loans	136,983	9,261
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	0	1,961
Total past due	0	3,343
Current	8,134	12,126
Total loans	8,134	15,469
Residential Mortgages [Member]
Summary of current and past due loans [Abstract]
30-59 days past due	1,465	2,867
60-89 days past due	761	6
90 days and over past due	1,929	2,466
Total past due	4,155	5,339
Current	158,503	141,236
Total loans	162,658	146,575
Home Equity [Member]
Summary of current and past due loans [Abstract]
30-59 days past due	1,527	261
60-89 days past due	143	100
90 days and over past due	1,063	266
Total past due	2,733	627
Current	56,367	65,841
Total loans	59,100	66,468
Consumer [Member]
Summary of current and past due loans [Abstract]
30-59 days past due	18	189
60-89 days past due	0	18
90 days and over past due	133	21
Total past due	151	228
Current	11,189	14,060
Total loans	$ 11,340	$ 14,288

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REGULATORY MATTERS

9 Months Ended

Sep. 30, 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 September 30, 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
September 30, 2013
Total capital to risk-weighted assets	$	176,252		15.10	%	$	93,382		8.00	%	$	116,728		10.00	%
Tier 1 capital to risk-weighted assets		161,620		13.85	%		46,691		4.00	%		70,037		6.00	%
Tier 1 capital to adjusted average assets (leverage)		161,620		9.59	%		67,418		4.00	%		84,273		5.00	%
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 reduction in the Bank’s capital ratios at September 30, 2013 versus December 31, 2012 resulted from an increase in total assets coupled with a change in the Bank’s mix of assets from 0% risk-weighted interest-bearing deposits due from banks to loans, principally at a 100% risk-weighting.

The Company’s Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios were 9.66%, 13.94% and 15.19%, respectively, at September 30, 2013.

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 September 30, 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.

The Office of the Comptroller of the Currency (“OCC”) approved the Final Rule on Regulatory Capital, revising regulatory capital rules applicable to national banks, on July 9, 2013 implementing Basel III. Most banking organizations are required to apply the new capital rules on January 1, 2015. The final rule sets a new common equity tier 1 requirement and higher minimum tier 1 requirements for all banking organizations. It also places limits on capital distributions and certain discretionary bonus payments if a banking organization does not maintain a buffer of common equity tier 1 capital above minimum capital requirements. The rule revises the Prompt Corrective Action Framework to incorporate the new regulatory capital minimums. It also enhances risk sensitivity and addresses weaknesses identified over recent years with the measure of risk-weighted assets, including through new measures of creditworthiness to replace references to credit ratings, consistent with section 939A of the Dodd-Frank Act. Based on our capital levels and balance sheet composition at September 30, 2013, we believe implementation of the new rule will not have a material impact on our capital needs.

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LOANS

9 Months Ended

Sep. 30, 2013

LOANS [Abstract]

LOANS

4. LOANS

At September 30, 2013 and December 31, 2012, net loans disaggregated by class consisted of the following (in thousands):

	September 30, 2013			December 31, 2012
Commercial and industrial	$	172,386		$	168,709
Commercial real estate		448,728			360,010
Multifamily		136,983			9,261
Real estate construction		8,134			15,469
Residential mortgages		162,658			146,575
Home equity		59,100			66,468
Consumer		11,340			14,288
Gross loans		999,329			780,780
Allowance for loan losses		(17,619	)		(17,781	)
Net loans at end of period	$	981,710		$	762,999

For the three and nine months ended September 30, 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			Multifamily			Real estate construction			Residential mortgages			Home equity			Consumer			Unallocated		Total
Three months ended September 30, 2013
Balance at beginning of period	$	4,778		$	6,701		$	529		$	278		$	2,341		$	1,059		$	247		$	1,360	$	17,293
Charge-offs		(60	)		(70	)		-			-			-			-			(11	)		-		(141	)
Recoveries		390			12			-			-			4			5			56			-		467
(Credit) provision for loan losses		(1,870	)		485			903			(4	)		218			17			(59	)		310		-
Balance at end of period	$	3,238		$	7,128		$	1,432		$	274		$	2,563		$	1,081		$	233		$	1,670	$	17,619
Three months ended September 30, 2012
Balance at beginning of period	$	15,082		$	8,088		$	93		$	163		$	1,634		$	2,008		$	176		$	1,983	$	29,227
Charge-offs		(6,689	)		(8,102	)		-			(2,123	)		(2,885	)		(1,360	)		(179	)		-		(21,338	)
Recoveries		462			-			-			260			112			246			52			-		1,132
(Credit) provision for loan losses		(327	)		6,752			(41	)		1,762			2,289			449			121			995		12,000
Balance at end of period	$	8,528		$	6,738		$	52		$	62		$	1,150		$	1,343		$	170		$	2,978	$	21,021

	Commercial and industrial			Commercial real estate			Multifamily			Real estate construction			Residential mortgages			Home equity			Consumer			Unallocated			Total
Nine months ended September 30, 2013
Balance at beginning of period	$	6,181		$	5,999		$	150		$	141		$	1,576		$	907		$	189		$	2,638		$	17,781
Charge-offs		(1,687	)		(70	)		-			-			(74	)		-			(133	)		-			(1,964	)
Recoveries		1,600			85			-			-			5			7			105			-			1,802
(Credit) provision for loan losses		(2,856	)		1,114			1,282			133			1,056			167			72			(968	)		-
Balance at end of period	$	3,238		$	7,128		$	1,432		$	274		$	2,563		$	1,081		$	233		$	1,670		$	17,619
Nine months ended September 30, 2012
Balance at beginning of period	$	25,047		$	10,470		$	559		$	623		$	2,401		$	512		$	313		$	33		$	39,958
Charge-offs		(7,816	)		(15,794	)		-			(2,123	)		(3,473	)		(1,953	)		(261	)		-			(31,420	)
Recoveries		2,086			-			-			340			114			246			97			-			2,883
(Credit) provision for loan losses		(10,789	)		12,062			(507	)		1,222			2,108			2,538			21			2,945			9,600
Balance at end of period	$	8,528		$	6,738		$	52		$	62		$	1,150		$	1,343		$	170		$	2,978		$	21,021

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 uncollectability 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 may be 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, multifamily, real estate construction, residential mortgages, home equity and consumer loans. For performing loans, an estimate of adequacy of the general component of the allowance 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 September 30, 2013 as compared to a provision of $12.0 million for the three months ended September 30, 2012. The $12.0 million provision for loan losses during the third quarter of 2012 resulted from workout and asset disposition activities undertaken in that period.

For the three months ended September 30, 2013, the ending balance of the Company’s allowance for loan losses increased by $326 thousand when compared to June 30, 2013. During the third quarter of 2013, the Company increased its allowance for loan losses allocated to multifamily loans and commercial real estate loans (“CRE”) by $903 thousand and $427 thousand, respectively, while reducing the amount allocated to commercial and industrial loans (“C&I”) by $1.5 million.

The increases in the allowance for loan losses allocated to multifamily and CRE loans were primarily due to increases in the balances of unimpaired pass rated multifamily and CRE loans of $79 million and $34 million, respectively, versus June 30, 2013.

The decrease in the allowance for loan losses allocated to C&I loans during the third quarter of 2013 reflected a 0.84% reduction in the ASC 450-20 historical loss factors rate on unimpaired pass rated C&I loans, a $5 million decrease in the balance of unimpaired pass rated C&I loans and a decrease of $34 thousand in specific reserves for C&I loans as computed under ASC 310-10 at September 30, 2013 as compared to June 30, 2013.

Effective with the March 31, 2013 calculation, the ASC 450-20 loss factors rates incorporate 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 resulted from the Company’s effort to improve the granularity of its individual loan segment charge-off history. 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 by individual loan segment.

At September 30, 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 September 30, 2013 and December 31, 2012 disaggregated by class and impairment methodology (in thousands).

September 30, 2013	Commercial and industrial		Commercial real estate		Multifamily		Real estate construction		Residential mortgages		Home equity		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	343	$	-	$	-	$	-	$	761	$	395	$	75	$	-	$	1,574
Ending balance: collectively evaluated for impairment		2,895		7,128		1,432		274		1,802		686		158		1,670		16,045
Ending balance	$	3,238	$	7,128	$	1,432	$	274	$	2,563	$	1,081	$	233	$	1,670	$	17,619
Loan balances:
Ending balance: individually evaluated for impairment	$	13,637	$	13,719	$	-	$	-	$	5,082	$	1,399	$	281	$	-	$	34,118
Ending balance: collectively evaluated for impairment		158,749		435,009		136,983		8,134		157,576		57,701		11,059		-		965,211
Ending balance	$	172,386	$	448,728	$	136,983	$	8,134	$	162,658	$	59,100	$	11,340	$	-	$	999,329

December 31, 2012	Commercial and industrial		Commercial real estate		Multifamily		Real estate construction		Residential mortgages		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		5,977		150		140		1,001		821		189		2,638		16,757
Ending balance	$	6,181	$	5,999	$	150	$	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		350,567		9,261		13,508		141,915		65,966		14,267		-		753,824
Ending balance	$	168,709	$	360,010	$	9,261	$	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 September 30, 2013 and December 31, 2012 (in thousands):

	September 30, 2013						December 31, 2012
	Unpaid Principal Balance		Recorded Balance		Allowance Allocated		Unpaid Principal Balance		Recorded Balance		Allowance  Allocated
With no allowance recorded:
Commercial and industrial	$	13,999	$	12,795	$	-	$	7,913	$	7,492	$	-
Commercial real estate		14,255		13,719		-		8,859		7,282		-
Real estate construction		-		-		-		1,334		1,305		-
Residential mortgages		2,113		1,984		-		1,918		1,788		-
Home equity		821		821		-		418		416		-
Consumer		19		8		-		21		21		-
Subtotal		31,207		29,327		-		20,463		18,304		-
With an allowance recorded:
Commercial and industrial		842		842		343		2,884		2,877		340
Commercial real estate		-		-		-		2,161		2,161		22
Real estate construction		-		-		-		656		656		1
Residential mortgages		3,223		3,098		761		3,015		2,872		575
Home equity		578		578		395		86		86		86
Consumer		276		273		75		-		-		-
Subtotal		4,919		4,791		1,574		8,802		8,652		1,024
Total	$	36,126	$	34,118	$	1,574	$	29,265	$	26,956	$	1,024

Shown below is additional information pertaining to the Company’s impaired loans disaggregated by class for the three and nine months ended September 30, 2013 and 2012 (in thousands):

	Three Months Ended September 30, 2013						Three Months Ended September 30, 2012
	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	$	12,695	$	47	$	-	$	19,946	$	58	$	-
Commercial real estate		8,406		224		-		24,146		209		-
Real estate construction		-		80		-		13,166		72		-
Residential mortgages		5,202		73		-		4,973		42		-
Home equity		1,174		4		-		2,360		4		-
Consumer		183		-		-		352		-		-
Total	$	27,660	$	428	$	-	$	64,943	$	385	$	-

	Nine Months Ended September 30, 2013						Nine Months Ended September 30, 2012
	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	$	12,799	$	279	$	-	$	27,660	$	373	$	-
Commercial real estate		8,635		369		-		48,318		468		-
Real estate construction		683		94		-		16,809		410		-
Residential mortgages		5,098		167		-		7,202		127		-
Home equity		1,092		8		-		3,396		4		-
Consumer		192		8		-		546		-		-
Total	$	28,499	$	925	$	-	$	103,931	$	1,382	$	-

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 $910 thousand and $800 thousand of specific reserves to customers whose loan terms have been modified as TDRs as of September 30, 2013 and December 31, 2012, respectively. These loans involved the restructuring of terms to allow customers to mitigate the risk of default 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 $43 thousand and $35 thousand were committed to be advanced in connection with TDRs as of September 30, 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 interest. 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 (dollars in thousands) present certain information regarding outstanding TDRs at September 30, 2013 and December 31, 2012, TDRs executed during the three and nine months ended September 30, 2013 and 2012 and TDRs with payment defaults of 90 days or more within twelve months of restructuring during the nine months ended September 30, 2013 and 2012. There were no such payment defaults during the three months ended September 30, 2013 and 2012.

	September 30, 2013				December 31, 2012
Total TDRs	Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance
Commercial and industrial		42	$	5,934		41	$	6,468
Commercial real estate		7		4,933		9		6,238
Residential mortgages		17		3,922		15		3,587
Consumer		4		161		5		311
		70	$	14,950		70	$	16,604

	Three months ended September 30, 2013						Three months ended September 30, 2012
			Pre-Modification		Post-Modification				Pre-Modification		Post-Modification
	Number		Outstanding		Outstanding		Number		Outstanding		Outstanding
	of		Recorded		Recorded		of		Recorded		Recorded
New TDRs	Loans		Balance		Balance		Loans		Balance		Balance
Commercial and industrial		1	$	228	$	228		3	$	815	$	815
Residential mortgages		1		19		19		-		-		-
		2	$	247	$	247		3	$	815	$	815

	Nine months ended September 30, 2013						Nine months ended September 30, 2012
			Pre-Modification		Post-Modification				Pre-Modification		Post-Modification
	Number		Outstanding		Outstanding		Number		Outstanding		Outstanding
	of		Recorded		Recorded		of		Recorded		Recorded
New TDRs	Loans		Balance		Balance		Loans		Balance		Balance
Commercial and industrial		5	$	1,120	$	1,120		13	$	5,920	$	5,920
Residential mortgages		4		924		924		1		81		81
Consumer		1		17		17		1		49		49
		10	$	2,061	$	2,061		15	$	6,050	$	6,050

	Nine months ended September 30, 2013				Nine months ended September 30, 2012
			Outstanding				Outstanding
	Number		Recorded		Number		Recorded
Defaulted TDRs	of Loans		Balance		of Loans		Balance
Commercial and industrial		-	$	-		2	$	1,200
		-	$	-		2	$	1,200

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.

Information regarding modifications and renewals executed during the three and nine months ended September 30, 2013 and 2012 that are not considered TDRs is shown below (dollars in thousands):

	Three months ended September 30, 2013				Three months ended September 30, 2012
			Outstanding				Outstanding
	Number		Recorded		Number		Recorded
Non-TDR Modifications	of Loans		Balance		of Loans		Balance
Commercial and industrial		11	$	2,240		2	$	1,325
Commercial real estate		11		6,367		6		5,008
Multifamily		1		410		-		-
		23	$	9,017		8	$	6,333

	Nine months ended September 30, 2013				Nine months ended September 30, 2012
			Outstanding				Outstanding
	Number		Recorded		Number		Recorded
Non-TDR Modifications	of Loans		Balance		of Loans		Balance
Commercial and industrial		19	$	6,741		8	$	3,863
Commercial real estate		31		32,485		15		15,123
Multifamily		1		410		-		-
		51	$	39,636		23	$	18,986

The following is a summary of information pertaining to non-performing assets at September 30, 2013 and December 31, 2012 (in thousands):

	September 30, 2013		December 31, 2012
Non-accrual loans	$	22,577	$	16,435
Non-accrual loans held-for-sale		-		907
Loans 90 days past due and still accruing		-		-
OREO		-		1,572
Total non-performing assets	$	22,577	$	18,914
TDRs accruing interest	$	10,024	$	9,954
TDRs non-accruing	$	4,926	$	6,650

The following table summarizes non-accrual loans by loan class at September 30, 2013 and December 31, 2012 (dollars in thousands):

	September 30, 2013										December 31, 2012
	Non- accrual loans		% of Total			Total Loans		% of Total Loans			Non- accrual loans		% of Total			Total Loans		% of Total Loans
Commercial and industrial	$	9,947		44.1	%	$	172,386		1.0	%	$	6,529		39.8	%	$	168,709		0.8	%
Commercial real estate		9,505		42.1			448,728		1.0			5,192		31.6			360,010		0.7
Multifamily		-		-			136,983		-			-		-			9,261		-
Real estate construction		-		-			8,134		-			1,961		11.9			15,469		0.3
Residential mortgages		1,929		8.5			162,658		0.2			2,466		15.0			146,575		0.3
Home equity		1,063		4.7			59,100		0.1			266		1.6			66,468		-
Consumer		133		0.6			11,340		-			21		0.1			14,288		-
Total	$	22,577		100.0	%	$	999,329		2.3	%	$	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 $208 thousand and $237 thousand would have been recorded on non-accrual loans during the three months ended September 30, 2013 and 2012, respectively, and $894 thousand and $1.3 million during the nine months ended September 30, 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 September 30, 2013 and December 31, 2012 (in thousands):

	September 30, 2013				December 31, 2012
	Principal Balance		Collateral Value		Principal Balance		Collateral Value
Commercial and industrial (1)	$	9,947	$	6,000	$	6,529	$	4,400
Commercial real estate		9,505		17,785		5,192		12,675
Real estate construction		-		-		1,961		3,661
Residential mortgages		1,929		4,347		2,466		5,141
Home equity		1,063		5,100		266		849
Consumer		133		-		21		-
Total	$	22,577	$	33,232	$	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 September 30, 2013 and December 31, 2012, past due loans disaggregated by class were as follows (in thousands):

	Past Due
September 30, 2013	30 - 59 days			60 - 89 days			90 days and over			Total			Current			Total
Commercial and industrial	$	86		$	-		$	9,947		$	10,033		$	162,353		$	172,386
Commercial real estate		-			639			9,505			10,144			438,584			448,728
Multifamily		-			-			-			-			136,983			136,983
Real estate construction		-			-			-			-			8,134			8,134
Residential mortgages		1,465			761			1,929			4,155			158,503			162,658
Home equity		1,527			143			1,063			2,733			56,367			59,100
Consumer		18			-			133			151			11,189			11,340
Total	$	3,096		$	1,543		$	22,577		$	27,216		$	972,113		$	999,329
% of Total Loans		0.3	%		0.1	%		2.3	%		2.7	%		97.3	%		100.0	%

	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			353,344			360,010
Multifamily		-			-			-			-			9,261			9,261
Real estate construction		1,382			-			1,961			3,343			12,126			15,469
Residential mortgages		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
% of Total Loans		1.6	%		0.2	%		2.1	%		3.9	%		96.1	%		100.0	%

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 September 30, 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):

September 30, 2013	Commercial and  industrial		Commercial real estate		Multifamily		Real estate construction		Residential mortgages		Home equity		Consumer		Total		% of Total
Grade:
Pass	$	150,149	$	413,226	$	136,983	$	8,134	$	157,634	$	57,951	$	11,054	$	935,131		93.6	%
Special mention		2,707		8,988		-		-		-		-		-		11,695		1.2
Substandard		19,530		26,514		-		-		5,024		1,149		286		52,503		5.2
Total	$	172,386	$	448,728	$	136,983	$	8,134	$	162,658	$	59,100	$	11,340	$	999,329		100.0	%

December 31, 2012	Commercial and industrial		Commercial real estate		Multifamily		Real estate construction		Residential  mortgages		Home equity		Consumer		Total		% of Total
Grade:
Pass	$	143,804	$	301,862	$	9,261	$	4,790	$	141,915	$	65,966	$	14,267	$	681,865		87.3	%
Special mention		5,995		38,670		-		-		-		-		-		44,665		5.7
Substandard		18,910		19,478		-		10,679		4,660		502		21		54,250		7.0
Total	$	168,709	$	360,010	$	9,261	$	15,469	$	146,575	$	66,468	$	14,288	$	780,780		100.0	%

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.

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Treasury stock [Member]
Number of common shares from treasury in connection with private equity offering (in shares)	1,839,533
Surplus [Member]
Stock issuance costs	$ 2,239

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LEGAL PROCEEDINGS (Details) (USD $)	9 Months Ended
	Sep. 30, 2013
LEGAL PROCEEDINGS [Abstract]
Fees and expenses incurred by the company insurer	$ 600,000
Payment made to escrow account for benefit of Class Members	$ 2,800,000

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INCOME TAXES (Details) (USD $)	9 Months Ended
	Sep. 30, 2013	Dec. 31, 2012
INCOME TAXES [Abstract]
Unrecognized tax benefits including interest	$ 34,000
Operating Loss Carryforwards [Line Items]
Income tax receivable	5,043,000	5,406,000
Valuation reserve	558,000
Operating loss carryforwards, expiration dates	2032-2033
Federal [Member]
Operating Loss Carryforwards [Line Items]
Net operating loss carryforwards	15,000,000
New York State [Member]
Operating Loss Carryforwards [Line Items]
Net operating loss carryforwards	$ 24,000,000

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INVESTMENT SECURITIES, Other disclosures (Details) (USD $)	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Jul. 30, 2013
Investment securities other disclosures [Abstract]
Sale of Visa Class B equity securities (in shares)			50,000
Proceeds from sale of Visa Shares	$ 3,836,000	$ 0
Contingent liability from counterparty estimated future exposure from Visa litigation	460,000
Approximate cash payment per quarter for Visa litigation	25,000
Pro rata cash payment for visa litigation recorded	13,000
US Government agency securities held as available-for-sale pledged as collateral	1,400,000
Shares of Visa Class B securities held	88,638
Fair value of Visa Class B shares held by entity	$ 0

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SUBSEQUENT EVENTS

9 Months Ended

Sep. 30, 2013

SUBSEQUENT EVENTS [Abstract]

Subsequent Events [Text Block]

11. SUBSEQUENT EVENT

On October 16, 2013, the Bank sold 40,000 Visa Class B shares at a gross pre-tax gain of approximately $2.7 million, which will be recorded in non-interest income in the Company’s statement of operations in the fourth quarter of 2013. The Company will also record its current estimate of the related liability of approximately $374 thousand arising from the sale of these shares as an operating expense in the fourth quarter as it retains the risk of future additions to the Visa, Inc. litigation reserve.

The Company continues to own 48,638 Visa Class B shares subsequent to the sale described above.  These shares remain restricted because of the continuing uncertainty of the litigation pending against Visa, Inc.  Accordingly, the Company continues to record its Visa Class B shares at zero pending the outcome of the litigation. To the extent that the Company continues to own Visa Class B shares in the future, the Company expects to record the fair value of those shares upon expiration of the foregoing restriction.

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INCOME TAXES

9 Months Ended

Sep. 30, 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 September 30, 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 applied 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 $15 million and $24 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 allowance 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 years 2032-2033. It is anticipated that the Federal carryforward will be utilized prior to its expiration based on the Company’s future years’ projected earnings.

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INVESTMENT SECURITIES (Tables)

9 Months Ended

Sep. 30, 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 September 30, 2013 and December 31, 2012 follow (in thousands).

	September 30, 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		109,338		-		(6,828	)		102,510		65,085		70		(77	)		65,078
Obligations of states and political subdivisions		150,955		8,828		-			159,783		155,121		13,314		-			168,435
Collateralized mortgage obligations		36,208		716		(660	)		36,264		87,624		2,148		(80	)		89,692
Mortgage-backed securities		104,176		31		(4,222	)		99,985		61,750		766		(66	)		62,450
Corporate bonds		15,568		259		(218	)		15,609		15,701		497		-			16,198
Total available for sale securities		416,245		9,834		(11,928	)		414,151		385,781		16,795		(223	)		402,353
Held to maturity:
Obligations of states and political subdivisions		7,150		643		-			7,793		8,035		826		-			8,861
Total investment securities	$	423,395	$	10,477	$	(11,928	)	$	421,944	$	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 September 30, 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.

	September 30, 2013
	Amortized		Estimated
	Cost		Fair Value
Securities available for sale:
Due in one year or less	$	18,003	$	18,252
Due from one to five years		123,574		129,476
Due from five to ten years		251,818		245,440
Due after ten years		22,850		20,983
Total securities available for sale		416,245		414,151
Securities held to maturity:
Due in one year or less		777		790
Due from one to five years		6,168		6,784
Due from five to ten years		205		219
Total securities held to maturity		7,150		7,793
Total investment securities	$	423,395	$	421,944

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 (losses) follow (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013		2012			2013		2012
Proceeds	$	-	$	3,584		$	13,427	$	3,584
Gross realized gains	$	3	$	-		$	395	$	-
Gross realized losses		-		162			-		162
Net realized gains (losses)	$	3	$	(162	)	$	395	$	(162	)

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
September 30, 2013	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
Type of securities	Fair value		Losses		Fair value		Losses		Fair value		Losses
U.S. Government agency securities	$	102,510	$	6,828	$	-	$	-	$	102,510	$	6,828
Collateralized mortgage obligations		8,900		660		-		-		8,900		660
Mortgage-backed securities		94,848		4,143		4,764		79		99,612		4,222
Corporate bonds		8,672		218		-		-		8,672		218
Total	$	214,930	$	11,849	$	4,764	$	79	$	219,694	$	11,928

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

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FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 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. Loans of all classes will 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, after a well-documented analysis by management, it has been determined that 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.

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, multifamily, real estate construction, residential mortgages, 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 impaired 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. 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 third parties. Changes in fair value of loans held-for-sale are recognized in earnings.

Bank Owned Life Insurance

Bank Owned Life Insurance - Bank owned life insurance is recorded at the lower of the cash surrender value or the amount that can be realized under the insurance policy and is included as an asset in the consolidated statements of condition. Changes in the cash surrender value and insurance benefit payments are recorded in non-interest income in the consolidated statements of operations.

Dividend Restriction

Dividend Restriction - Banking regulations 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.)

Derivatives

Derivatives- Derivatives are contracts between two parties that specify conditions under which payments are to be made between the parties. The only derivative held by the Company relates to the swap agreement with the purchaser of VISA Class B shares, which provides for settlements between parties in the event that VISA makes subsequent revisions to the conversion ratio of VISA Class B shares to VISA Class A shares. The Company records its derivative on the balance sheet at fair value. Changes in fair value are recognized in earnings in the period of change. (See also Investment Securities, Fair Value and Subsequent Event footnotes contained herein.)

Recent Accounting Guidance

Recent Accounting Guidance – On July 18, 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-11, Income Taxes (Topic 740), “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” to clarify the balance sheet presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists.  The ASU requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Management intends to adopt ASU 2013-111 effective January 1, 2014, and does not believe that the adoption will have a material effect on the Company’s consolidated financial statements.

In February 2013, the FASB issued 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 consolidated results of operations or financial condition.

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Document and Entity Information	9 Months Ended
	Sep. 30, 2013	Oct. 24, 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		11,573,014
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q3
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2013

XML

ACCUMULATED OTHER COMPREHENSIVE INCOME (AOCI) (Tables)

9 Months Ended

Sep. 30, 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 and nine months ended September 30, 2013 and 2012 follow (in thousands). The decrease in net unrealized gains on available for sale securities for both the three and nine months ended September 30, 2013 resulted solely from the negative impact of higher interest rates in 2013.

	Three Months Ended September 30, 2013									Three Months Ended September 30, 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	$	111		$	(7,944	)	$	(7,833	)	$	9,213	$	(15,198	)	$	(5,985	)
Other comprehensive loss (income) before reclassifications		(1,443	)		-			(1,443	)		3,376		(1,116	)		2,260
Amounts reclassified from AOCI		(2	)		-			(2	)		103		-			103
Net other comprehensive loss (income)		(1,445	)		-			(1,445	)		3,479		(1,116	)		2,363
Ending balance	$	(1,334	)	$	(7,944	)	$	(9,278	)	$	12,692	$	(16,314	)	$	(3,622	)

	Nine Months Ended September 30, 2013									Nine Months Ended September 30, 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 (income) before reclassifications		(11,635	)		(277	)		(11,912	)		716		(1,371	)		(655	)
Amounts reclassified from AOCI		(252	)		-			(252	)		103		-			103
Net other comprehensive loss (income)		(11,887	)		(277	)		(12,164	)		819		(1,371	)		(552	)
Ending balance	$	(1,334	)	$	(7,944	)	$	(9,278	)	$	12,692	$	(16,314	)	$	(3,622	)

Reclassifications out of AOCI

The table below presents reclassifications out of AOCI for the three and nine months ended September 30, 2013 (in thousands).

	Amount Reclassified from AOCI
Details about AOCI Components	Three Months Ended September 30, 2013			Nine Months Ended September 30, 2013			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available for sale securities	$	3		$	395		Net gain (loss) on sale of securities available for sale
		(1	)		(143	)	Income tax expense (benefit)
Total reclassifications, net of tax	$	2		$	252