10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: MARCH 31, 2015

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File 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, P.O. BOX 9000, RIVERHEAD, NY 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 ☒    No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒    No ☐

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

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☐

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

Yes ☐    No ☒

As of April 15, 2015, there were 11,728,384 shares of registrant’s Common Stock outstanding.

SUFFOLK BANCORP

Form 10-Q

For the Quarterly Period Ended March 31, 2015

Table of Contents

		Page
	PART I
Item 1.	Financial Statements	2
	Condensed Consolidated Statements of Condition (Unaudited) as of March 31, 2015 and December 31, 2014	2
	Condensed Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 2015 and 2014	3
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2015 and 2014	4
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, 2015 and 2014	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2015 and 2014	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	41
	PART II
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	42
	Signatures	43

1

PART I

ITEM 1. – FINANCIAL STATEMENTS

SUFFOLK BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)

March 31, 2015 and December 31, 2014

(dollars in thousands, except per share data)

	March 31, 2015			December 31, 2014
ASSETS
Cash and cash equivalents
Cash and non-interest-bearing deposits due from banks	$	46,886		$	41,140
Interest-bearing deposits due from banks		12,138			13,376
Federal funds sold		-			1,000
Total cash and cash equivalents		59,024			55,516
Interest-bearing time deposits in other banks		10,000			10,000
Federal Reserve Bank,  Federal Home Loan Bank and other stock		6,800			8,600
Investment securities:
Available for sale, at fair value		291,557			298,670
Held to maturity (fair value of $65,414 and $64,796, respectively)		62,191			62,270
Total investment securities		353,748			360,940
Loans		1,382,160			1,355,427
Allowance for loan losses		19,325			19,200
Net loans		1,362,835			1,336,227
Loans held for sale		2,836			26,495
Premises and equipment, net		23,219			23,641
Bank owned life insurance		45,418			45,109
Deferred taxes		14,886			15,714
Accrued interest and loan fees receivable		6,482			5,676
Goodwill and other intangibles		3,043			2,991
Other assets		3,666			4,374
TOTAL ASSETS	$	1,891,957		$	1,895,283
LIABILITIES & STOCKHOLDERS' EQUITY
Demand deposits	$	682,593		$	683,634
Savings, N.O.W. and money market deposits		685,891			653,667
Subtotal core deposits		1,368,484			1,337,301
Time deposits		223,188			218,759
Total deposits		1,591,672			1,556,060
Borrowings		90,000			130,000
Unfunded pension liability		6,192			6,303
Capital leases		4,483			4,511
Other liabilities		12,050			15,676
TOTAL LIABILITIES		1,704,397			1,712,550
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock (par value $2.50; 15,000,000 shares authorized; 13,891,390 shares and 13,836,508 shares issued at March 31, 2015 and December 31, 2014, respectively; 11,725,652 shares and 11,670,770 shares outstanding at March 31, 2015 and December 31, 2014, respectively)		34,728			34,591
Surplus		44,495			44,230
Retained earnings		119,478			116,169
Treasury stock at par (2,165,738 shares)		(5,414	)		(5,414	)
Accumulated other comprehensive loss, net of tax		(5,727	)		(6,843	)
TOTAL STOCKHOLDERS' EQUITY		187,560			182,733
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,891,957		$	1,895,283

See accompanying notes to unaudited condensed consolidated financial statements.

2

SUFFOLK BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

For the Three Months Ended March 31, 2015 and 2014

(dollars in thousands, except per share data)

	Three Months Ended March 31,
	2015		2014
INTEREST INCOME
Loans and loan fees	$	14,569	$	12,877
U.S. Government agency obligations		541		628
Obligations of states and political subdivisions		1,335		1,505
Collateralized mortgage obligations		182		250
Mortgage-backed securities		445		501
Corporate bonds		38		90
Federal funds sold and interest-bearing deposits due from banks		23		46
Dividends		60		38
Total interest income		17,193		15,935
INTEREST EXPENSE
Savings, N.O.W. and money market deposits		274		292
Time deposits		294		345
Borrowings		108		-
Total interest expense		676		637
Net interest income		16,517		15,298
Provision for loan losses		250		250
Net interest income after provision for loan losses		16,267		15,048
NON-INTEREST INCOME
Service charges on deposit accounts		747		1,003
Other service charges, commissions and fees		593		679
Fiduciary fees		-		279
Net gain on sale of securities available for sale		26		-
Net gain on sale of portfolio loans		198		-
Net gain on sale of mortgage loans originated for sale		144		93
Net gain on sale of premises and equipment		-		642
Income from bank owned life insurance		309		354
Other operating income		74		42
Total non-interest income		2,091		3,092
OPERATING EXPENSES
Employee compensation and benefits		8,606		8,861
Occupancy expense		1,462		1,435
Equipment expense		385		449
Consulting and professional services		338		551
FDIC assessment		290		267
Data processing		570		573
Branch consolidation costs (credits)		-		(170	)
Other operating expenses		1,457		1,343
Total operating expenses		13,108		13,309
Income before income tax expense		5,250		4,831
Income tax expense		1,241		1,111
NET INCOME	$	4,009	$	3,720
EARNINGS PER COMMON SHARE - BASIC	$	0.34	$	0.32
EARNINGS PER COMMON SHARE - DILUTED	$	0.34	$	0.32
WEIGHTED AVERAGE COMMON SHARES - BASIC		11,694,427		11,573,014
WEIGHTED AVERAGE COMMON SHARES - DILUTED		11,763,099		11,631,462
CASH DIVIDENDS DECLARED PER COMMON SHARE	$	0.06	$	-

See accompanying notes to unaudited condensed consolidated financial statements.

3

SUFFOLK BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

For the Three Months Ended March 31, 2015 and 2014

(in thousands)

	Three Months Ended March 31,
	2015		2014
Net income	$	4,009	$	3,720
Other comprehensive income, net of tax and reclassification adjustments:
Change in unrealized gain on securities available for sale arising during the period, net of tax of $703 and $2,681, respectively		1,075		4,700
Change in unrealized gain (loss) on securities transferred from available for sale to held to maturity, net of tax of $27 and ($920), respectively		41		(1,612	)
Total other comprehensive income, net of tax		1,116		3,088
Total comprehensive income	$	5,125	$	6,808

See accompanying notes to unaudited condensed consolidated financial statements.

4

SUFFOLK BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

For the Three Months Ended March 31, 2015 and 2014

(in thousands, except per share data)

	Three Months Ended March 31,
	2015			2014
Common stock
Balance, January 1	$	34,591		$	34,348
Dividend reinvestment (7,295 shares issued in 2015)		18			-
Stock options exercised (1,000 shares issued in 2015)		3			-
Stock-based compensation (46,587 shares issued, net of forfeitures, in 2015)		116			-
Ending balance		34,728			34,348
Surplus
Balance, January 1		44,230			43,280
Dividend reinvestment		143			-
Stock options exercised		16			-
Stock-based compensation		106			165
Ending balance		44,495			43,445
Retained earnings
Balance, January 1		116,169			102,273
Net income		4,009			3,720
Cash dividend on common stock ($0.06 per share in 2015)		(700	)		-
Ending balance		119,478			105,993
Treasury stock
Balance, January 1		(5,414	)		(5,414	)
Ending balance		(5,414	)		(5,414	)
Accumulated other comprehensive loss, net of tax
Balance, January 1		(6,843	)		(7,289	)
Other comprehensive income		1,116			3,088
Ending balance		(5,727	)		(4,201	)
Total stockholders' equity	$	187,560		$	174,171

See accompanying notes to unaudited condensed consolidated financial statements.

5

SUFFOLK BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the Three Months Ended March 31, 2015 and 2014

(in thousands)

	Three Months Ended March 31,
	2015			2014
NET INCOME	$	4,009		$	3,720
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Provision for loan losses		250			250
Depreciation and amortization		565			604
Stock-based compensation		222			165
Net amortization of premiums		297			293
Originations of mortgage loans held for sale		(9,314	)		(4,061	)
Proceeds from sale of mortgage loans originated for sale		9,281			4,139
Gain on sale of mortgage loans originated for sale		(144	)		(93	)
Gain on sale of portfolio loans		(198	)		-
Increase in other intangibles		(52	)		(16	)
Deferred tax expense (benefit)		99			(78	)
Increase in accrued interest and loan fees receivable		(806	)		(881	)
Decrease in other assets		708			372
Adjustment to unfunded pension liability		(111	)		(91	)
Decrease in other liabilities		(3,626	)		(4,230	)
Income from bank owned life insurance		(309	)		(354	)
Gain on sale of premises and equipment		-			(642	)
Net gain on sale of securities available for sale		(26	)		-
Net cash provided by (used in) operating activities		845			(903	)
CASH FLOWS FROM INVESTING ACTIVITIES
Principal payments on investment securities		1,413			3,854
Proceeds from sale of investment securities - available for sale		531			-
Maturities of investment securities - available for sale		6,705			6,040
Maturities of investment securities - held to maturity		117			315
Purchases of investment securities -  held to maturity		-			(2,834	)
Decrease in Federal Reserve Bank, Federal Home Loan Bank and other stock		1,800			-
Proceeds from sale of portfolio loans		23,986			-
Loan originations - net		(26,810	)		(60,746	)
Proceeds from sale of premises and equipment		-			900
Increase in bank owned life insurance		-			(5,000	)
Purchases of premises and equipment - net		(143	)		(124	)
Net cash provided by (used in) investing activities		7,599			(57,595	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts		35,612			13,373
Net decrease in borrowings		(40,000	)		-
Proceeds from stock options exercised		19			-
Cash dividends paid on common stock		(700	)		-
Proceeds from shares issued under the dividend reinvestment plan		161			-
Decrease  in capital lease payable		(28	)		(24	)
Net cash (used in) provided by financing activities		(4,936	)		13,349
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		3,508			(45,149	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		55,516			132,352
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	59,024		$	87,203
SUPPLEMENTAL DATA:
Interest paid	$	681		$	637
Income taxes paid	$	340		$	329
Investment securities transferred from available for sale to held to maturity	$	-		$	31,286

See accompanying notes to unaudited condensed consolidated financial statements.

6

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Suffolk Bancorp (the “Company”) was incorporated in 1985 as a bank holding company. The Company currently owns all of the outstanding capital stock of Suffolk County National Bank (the “Bank”). The Bank was organized under the national banking laws of the United States in 1890. The Bank formed Suffolk Greenway, Inc. (the “REIT”), 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. The unaudited interim condensed consolidated financial statements include the accounts of the Company and the Bank and its subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Unless the context otherwise requires, references herein to the Company include the Company and the Bank and subsidiaries on a consolidated basis.

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 statement of condition as of March 31, 2015, its condensed consolidated statements of income for the three months ended March 31, 2015 and 2014, its condensed consolidated statements of comprehensive income for the three months ended March 31, 2015 and 2014, its condensed consolidated statements of changes in stockholders’ equity for the three months ended March 31, 2015 and 2014 and its condensed consolidated statements of cash flows for the three months ended March 31, 2015 and 2014.

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 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. The results of operations for the three months ended March 31, 2015 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 2014 Annual Report on Form 10-K.

Earnings Per Share - Basic earnings per share is computed based on the weighted average number of common shares and unvested restricted shares outstanding for each period. The Company’s unvested restricted shares are considered participating securities as they contain rights to non-forfeitable dividends and thus they are included in the basic earnings per share computation. Diluted earnings per share include the dilutive effect of additional potential common shares issuable under stock options. In the event a net loss is reported, restricted shares and stock options are excluded from earnings per share computations.

The reconciliation of basic and diluted weighted average number of common shares outstanding for the three months ended March 31, 2015 and 2014 follows.

	Three Months Ended March 31,
	2015		2014
Weighted average common shares outstanding		11,602,924		11,573,014
Weighted average unvested restricted shares		91,503		-
Weighted average shares for basic earnings per share		11,694,427		11,573,014
Additional diluted shares:
Stock options		68,672		58,448
Weighted average shares for diluted earnings per share		11,763,099		11,631,462

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.

7

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 may 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 quarterly 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. 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. These classes are commercial and industrial, commercial real estate, multifamily, mixed use commercial, real estate construction, residential mortgages, home equity and consumer loans.

The allowance for loan losses consists of specific and general components, as well as an unallocated component. 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 or liquidation of collateral. Impaired loans that are collateral dependent are reviewed based on the fair market value of 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 estimated 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. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

Loans Held For Sale – Loans held for sale are carried at the lower of aggregate cost or fair value, based on observable inputs in the secondary market. 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 income.

Derivatives- Derivatives are contracts between counterparties that specify conditions under which settlements are to be made. The only derivatives held by the Company are swap contracts with the purchaser of its Visa Class B shares. The Company records its derivatives on the consolidated statements of condition at fair value. The Company’s derivatives do not qualify for hedge accounting. As a result, changes in fair value are recognized in earnings in the period in which they occur. (See also Note 3. Investment Securities contained herein.)

8

Recent Accounting Guidance – In January 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-01, Income Statement—Extraordinary and Unusual Items (Subtopic 225-20), “Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items,” as part of its initiative to reduce complexity in accounting standards (the Simplification Initiative). This ASU eliminates from U.S. GAAP the concept of extraordinary items. Eliminating the concept of extraordinary items will save time and reduce costs for preparers because they will not have to assess whether a particular event or transaction event is extraordinary (even if they ultimately would conclude it is not). This also alleviates uncertainty for preparers, auditors, and regulators because auditors and regulators no longer will need to evaluate whether a preparer treated an unusual and/or infrequent item appropriately. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. Management intends to adopt ASU 2015-01 on January 1, 2016 and does not believe that the adoption will have a material effect on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), “Revenue from Contracts with Customers,” which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of the ASU is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. The ASU defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The ASU is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting the ASU recognized at the date of adoption (which includes additional footnote disclosures). The Company has not yet determined the method by which it will adopt ASU 2014-09 in 2017 and does not believe that the adoption will have a material effect on the Company’s consolidated financial statements. On April 2, 2015, the FASB decided to propose a one-year delay of the effective date for the new revenue recognition standard. If the proposal is finalized, the revenue recognition standard would take effect in 2018 for calendar year-end public entities. The proposal is expected to be released soon with a 30 day comment period.

In January 2014, the FASB issued ASU 2014-04, Receivables—Troubled Debt Restructurings by Creditors (Topic 310), “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure,” to clarify when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The ASU requires interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. The Company’s adoption of ASU 2014-04 on January 1, 2015 did not have a material effect on the Company’s consolidated financial statements.

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.

2. ACCUMULATED OTHER COMPREHENSIVE INCOME (“AOCI”)

The changes in the Company’s AOCI by component, net of tax, for the three months ended March 31, 2015 and 2014 follow (in thousands).

	Three Months Ended March 31, 2015
	Unrealized Gains and Losses on Available for Sale Securities			Unrealized Losses on Securities Transferred from Available for Sale to Held to Maturity			Pension and Post- Retirement Plan Items			Total
Beginning balance	$	2,637		$	(1,805	)	$	(7,675	)	$	(6,843	)
Other comprehensive income before reclassifications		1,091			-			-			1,091
Amounts reclassified from AOCI		(16	)		41			-			25
Net other comprehensive income		1,075			41			-			1,116
Ending balance	$	3,712		$	(1,764	)	$	(7,675	)	$	(5,727	)

9

	Three Months Ended March 31, 2014
	Unrealized Gains and Losses on Available for Sale Securities			Unrealized Losses on Securities Transferred from Available for Sale to Held to Maturity			Pension and Post- Retirement Plan Items			Total
Beginning balance	$	(4,095	)	$	-		$	(3,194	)	$	(7,289	)
Other comprehensive income (loss) before reclassifications		4,700			(1,633	)		-			3,067
Amounts reclassified from AOCI		-			21			-			21
Net other comprehensive income (loss)		4,700			(1,612	)		-			3,088
Ending balance	$	605		$	(1,612	)	$	(3,194	)	$	(4,201	)

The table below presents reclassifications out of AOCI for the three months ended March 31, 2015 and 2014 (in thousands).

	Amount Reclassified from AOCI
	Three Months Ended March 31,						Affected Line Item in the Statement
Details about AOCI Components	2015			2014			Where Net Income is Presented
Unrealized gains and losses on available for sale securities	$	26		$	-		Net gain on sale of securities available for sale
Unrealized losses on securities transferred from available for sale to held to maturity		(68	)		(33	)	Interest income - U.S. Government agency obligations
		17			12		Income tax expense
Total reclassifications, net of tax	$	(25	)	$	(21	)

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 in AOCI 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. 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 income and determined using the adjusted cost of the specific security sold.

During the full year of 2014, investment securities with a fair value of $48 million and unrealized loss of $3.2 million were transferred from available for sale to held to maturity. In accordance with U.S. GAAP, the securities were transferred at fair value, which became the amortized cost. The discount will be accreted to interest income over the remaining life of the security. The unrealized holding losses at the date of transfer remained in AOCI and will be amortized simultaneously against interest income. Those entries will offset or mitigate each other.

10

The amortized cost, fair value and gross unrealized gains and losses of the Company’s investment securities available for sale and held to maturity at March 31, 2015 and December 31, 2014 were as follows (in thousands):

	March 31, 2015									December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale:
U.S. Government agency securities	$	38,974	$	8	$	(273	)	$	38,709	$	42,474	$	-	$	(897	)	$	41,577
Obligations of states and political subdivisions		127,440		6,484		-			133,924		131,300		6,469		-			137,769
Collateralized mortgage obligations		21,470		273		(352	)		21,391		22,105		423		(531	)		21,997
Mortgage-backed securities		91,211		388		(515	)		91,084		92,095		88		(1,264	)		90,919
Corporate bonds		6,324		142		(17	)		6,449		6,336		90		(18	)		6,408
Total available for sale securities		285,419		7,295		(1,157	)		291,557		294,310		7,070		(2,710	)		298,670
Held to maturity:
U.S. Government agency securities		48,433		2,431		-			50,864		48,365		1,717		-			50,082
Obligations of states and political subdivisions		13,758		792		-			14,550		13,905		809		-			14,714
Total held to maturity securities		62,191		3,223		-			65,414		62,270		2,526		-			64,796
Total investment securities	$	347,610	$	10,518	$	(1,157	)	$	356,971	$	356,580	$	9,596	$	(2,710	)	$	363,466

At March 31, 2015 and December 31, 2014, investment securities carried at $246 million and $245 million, respectively, were pledged for public funds on deposit and as collateral for the Company’s derivative swap contracts.

The amortized cost, contractual maturities and fair value of the Company’s investment securities at March 31, 2015 (in thousands) are presented in the table below. Collateralized mortgage obligations (“CMOs”) and mortgage-backed securities (“MBS”) assume maturity dates pursuant to average lives.

	March 31, 2015
	Amortized Cost		Fair Value
Securities available for sale:
Due in one year or less	$	28,100	$	28,595
Due from one to five years		143,494		147,769
Due from five to ten years		113,825		115,193
Total securities available for sale		285,419		291,557
Securities held to maturity:
Due in one year or less		1,630		1,644
Due from one to five years		5,392		5,792
Due from five to ten years		32,073		33,256
Due after ten years		23,096		24,722
Total securities held to maturity		62,191		65,414
Total investment securities	$	347,610	$	356,971

The proceeds from sales of securities available for sale and the associated realized gains and losses are shown below for the periods indicated (in thousands). Realized gains are also inclusive of gains on called securities.

	Three Months Ended March 31,
	2015		2014
Proceeds	$	531	$	-
Gross realized gains	$	26	$	-
Gross realized losses		-		-
Net realized gains	$	26	$	-

11

Information pertaining to securities with unrealized losses at March 31, 2015 and December 31, 2014, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows (in thousands):

	Less than 12 months					12 months or longer					Total
March 31, 2015	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Government agency securities	$	13,919	$	(60	)	$	19,787	$	(213	)	$	33,706	$	(273	)
Collateralized mortgage obligations		-		-			8,476		(352	)		8,476		(352	)
Mortgage-backed securities		20,712		(115	)		27,159		(400	)		47,871		(515	)
Corporate bonds		-		-			2,983		(17	)		2,983		(17	)
Total	$	34,631	$	(175	)	$	58,405	$	(982	)	$	93,036	$	(1,157	)

	Less than 12 months				12 months or longer					Total
December 31, 2014	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Government agency securities	$	-	$	-	$	41,577	$	(897	)	$	41,577	$	(897	)
Collateralized mortgage obligations		-		-		8,417		(531	)		8,417		(531	)
Mortgage-backed securities		-		-		81,510		(1,264	)		81,510		(1,264	)
Corporate bonds		-		-		2,982		(18	)		2,982		(18	)
Total	$	-	$	-	$	134,486	$	(2,710	)	$	134,486	$	(2,710	)

The corporate bonds with unrealized losses for twelve months or longer at March 31, 2015 in the table above carry investment grade ratings by all major credit rating agencies including both Moody’s and Standard  & Poor’s. The unrealized losses on these bonds were a result of the current interest rate environment and the corresponding shape of the yield curve. The losses were not related to a deterioration of the quality of the issuer or any company-specific adverse events. All other securities with unrealized losses for twelve months or longer at March 31, 2015 are issued or guaranteed by U.S. Government agencies or sponsored enterprises and the related unrealized losses resulted solely from the current interest rate environment and the corresponding shape of the yield curve. The Company does not intend to sell and it is not more likely than not that the Company will be required to sell these securities prior to their recovery to a level equal to or greater than amortized cost. Management has determined that no other-than-temporary impairment (“OTTI”) was present at March 31, 2015.

The Bank was a member of the Visa USA payment network and was issued Class B shares upon Visa’s initial public offering in March 2008. The Visa Class B shares are transferable only under limited circumstances until they can be converted into shares of the publicly traded class of stock. This conversion 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 conversion ratio of Visa Class B shares into 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 its Visa Class B shares on its balance sheet at zero value.

During 2013, the Bank sold 100,000 Visa Class B shares to another Visa USA member financial institution at a gross pre-tax gain of approximately $7.8 million which was recorded in non-interest income in the Company’s statement of income. In conjunction with the sale, the Company entered into derivative swap contracts with the purchaser of these Visa Class B shares which provide for settlements between the purchaser and the Company based upon a change in the conversion ratio of Visa Class B shares into Visa Class A shares.

In the fourth quarter of 2014, the Bank received notification of a change in the conversion ratio of Visa Class B shares into Visa Class A shares and was required to make a payment of $180 thousand to the purchaser of the Visa Class B shares it sold in 2013. The Company’s recorded liability representing the fair value of the derivative was $752 thousand at March 31, 2015 and December 31, 2014.

The present value of estimated future fees to be paid to the derivative counterparty, or carrying costs, calculated by reference to the market price of the Visa Class A shares at a fixed rate of interest are expensed as incurred. For the three months ended March 31, 2015 and 2014, $70 thousand and $59 thousand, respectively, in such carrying costs was expensed. The Company has pledged U.S. Government agency securities held in its available for sale portfolio, with a market value of approximately $3 million at March 31, 2015, as collateral for the derivative swap contracts.

12

Subjectivity has been used in estimating the fair value of both the derivative liability and the associated fees, but management believes that these fair value estimates are adequate based on available information. However, future developments in the litigation could require potentially significant changes to these estimates.

At March 31, 2015, the Company still owned 38,638 Visa Class B shares subsequent to the sales described here. Upon termination of the existing transfer restriction and settlement of the litigation, and to the extent that the Company continues to own such Visa Class B shares in the future, the Company expects to record its Visa Class B shares at fair value.

4. LOANS

At March 31, 2015 and December 31, 2014, net loans disaggregated by class consisted of the following (in thousands):

	March 31, 2015			December 31, 2014
Commercial and industrial	$	178,812		$	177,813
Commercial real estate		579,873			560,524
Multifamily		322,229			309,666
Mixed use commercial		35,333			34,806
Real estate construction		24,608			26,206
Residential mortgages		184,977			187,828
Home equity		49,440			50,982
Consumer		6,888			7,602
Gross loans		1,382,160			1,355,427
Allowance for loan losses		(19,325	)		(19,200	)
Net loans at end of period	$	1,362,835		$	1,336,227

The following summarizes the activity in the allowance for loan losses disaggregated by class for the periods indicated (in thousands).

	Three Months Ended March 31, 2015												Three Months Ended March 31, 2014
	Balance at beginning of period		Charge-offs			Recoveries		Provision (credit) for loan losses			Balance at end of period		Balance at beginning of period		Charge-offs			Recoveries		(Credit) provision for loan losses			Balance at end of period
Commercial and industrial	$	1,560	$	(492	)	$	343	$	587		$	1,998	$	2,615	$	(115	)	$	293	$	(312	)	$	2,481
Commercial real estate		6,777		-			7		568			7,352		6,572		-			12		624			7,208
Multifamily		4,018		-			-		449			4,467		2,159		-			-		481			2,640
Mixed use commercial		261		-			-		12			273		54		-			-		33			87
Real estate construction		383		-			-		(23	)		360		88		-			-		129			217
Residential mortgages		3,027		-			11		(420	)		2,618		2,463		-			4		160			2,627
Home equity		709		-			2		17			728		745		-			27		(54	)		718
Consumer		166		(1	)		5		(15	)		155		241		(2	)		5		(58	)		186
Unallocated		2,299		-			-		(925	)		1,374		2,326		-			-		(753	)		1,573
Total	$	19,200	$	(493	)	$	368	$	250		$	19,325	$	17,263	$	(117	)	$	341	$	250		$	17,737

Factors considered by management in determining loan 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.

The general component of the allowance covers non-impaired loans and is based on historical loss experience, adjusted for qualitative factors. 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.

13

At March 31, 2015 and December 31, 2014, the ending balance in the allowance for loan losses disaggregated by class and impairment methodology is as follows (in thousands). Also in the tables below are total loans at March 31, 2015 and December 31, 2014 disaggregated by class and impairment methodology (in thousands).

	Allowance for Loan Losses						Loan Balances
March 31, 2015	Individually evaluated for impairment		Collectively evaluated for impairment		Ending balance		Individually evaluated for impairment		Collectively evaluated for impairment		Ending balance
Commercial and industrial	$	10	$	1,988	$	1,998	$	3,764	$	175,048	$	178,812
Commercial real estate		-		7,352		7,352		10,302		569,571		579,873
Multifamily		-		4,467		4,467		-		322,229		322,229
Mixed use commercial		-		273		273		-		35,333		35,333
Real estate construction		-		360		360		-		24,608		24,608
Residential mortgages		771		1,847		2,618		5,651		179,326		184,977
Home equity		159		569		728		1,670		47,770		49,440
Consumer		88		67		155		398		6,490		6,888
Unallocated		-		1,374		1,374		-		-		-
Total	$	1,028	$	18,297	$	19,325	$	21,785	$	1,360,375	$	1,382,160

	Allowance for Loan Losses						Loan Balances
December 31, 2014	Individually evaluated for impairment		Collectively evaluated for impairment		Ending balance		Individually evaluated for impairment		Collectively evaluated for impairment		Ending balance
Commercial and industrial	$	16	$	1,544	$	1,560	$	4,889	$	172,924	$	177,813
Commercial real estate		-		6,777		6,777		10,214		550,310		560,524
Multifamily		-		4,018		4,018		-		309,666		309,666
Mixed use commercial		-		261		261		-		34,806		34,806
Real estate construction		-		383		383		-		26,206		26,206
Residential mortgages		809		2,218		3,027		5,422		182,406		187,828
Home equity		92		617		709		1,567		49,415		50,982
Consumer		88		78		166		323		7,279		7,602
Unallocated		-		2,299		2,299		-		-		-
Total	$	1,005	$	18,195	$	19,200	$	22,415	$	1,333,012	$	1,355,427

14

The following table presents the Company’s impaired loans disaggregated by class at March 31, 2015 and December 31, 2014 (in thousands).

	March 31, 2015						December 31, 2014
	Unpaid Principal Balance		Recorded Balance		Allowance Allocated		Unpaid Principal Balance		Recorded Balance		Allowance Allocated
With no allowance recorded:
Commercial and industrial	$	3,723	$	3,723	$	-	$	4,833	$	4,833	$	-
Commercial real estate		10,721		10,302		-		10,632		10,214		-
Residential mortgages		1,919		1,773		-		1,645		1,516		-
Home equity		1,407		1,407		-		1,377		1,377		-
Consumer		214		214		-		137		137		-
Subtotal		17,984		17,419		-		18,624		18,077		-
With an allowance recorded:
Commercial and industrial		42		41		10		57		56		16
Residential mortgages		3,877		3,878		771		3,906		3,906		809
Home equity		400		263		159		326		190		92
Consumer		182		184		88		185		186		88
Subtotal		4,501		4,366		1,028		4,474		4,338		1,005
Total	$	22,485	$	21,785	$	1,028	$	23,098	$	22,415	$	1,005

The following table presents the Company’s average recorded investment in impaired loans and the related interest income recognized disaggregated by class for the three months ended March 31, 2015 and 2014 (in thousands). No interest income was recognized on a cash basis on impaired loans for any of the periods presented. The interest income recognized on accruing impaired loans is shown in the following table.

	Three Months Ended March 31,
	2015				2014
	Average recorded investment in impaired loans		Interest income recognized on impaired loans		Average recorded investment in impaired loans		Interest income recognized on impaired loans
Commercial and industrial	$	4,551	$	33	$	7,567	$	107
Commercial real estate		10,208		50		11,558		99
Residential mortgages		5,411		38		5,036		36
Home equity		1,662		13		771		17
Consumer		383		3		170		2
Total	$	22,215	$	137	$	25,102	$	261

TDRs are 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 $745 thousand and $790 thousand of specific reserves to customers whose loan terms have been modified as TDRs as of March 31, 2015 and December 31, 2014, 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 $45 thousand and $100 thousand were committed to be advanced in connection with TDRs as of March 31, 2015 and December 31, 2014, 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.

15

Outstanding TDRs, disaggregated by class, at March 31, 2015 and December 31, 2014 are as follows (dollars in thousands):

	March 31, 2015				December 31, 2014
TDRs Outstanding	Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance
Commercial and industrial		30	$	2,721		31	$	3,683
Commercial real estate		8		10,057		8		10,179
Residential mortgages		21		4,478		19		4,314
Home equity		5		1,208		5		1,216
Consumer		7		277		7		281
Total		71	$	18,741		70	$	19,673

The following presents, disaggregated by class, information regarding TDRs executed during the three months ended March 31, 2015 and 2014 (dollars in thousands):

	Three Months Ended March 31,
	2015						2014
New TDRs	Number of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance		Number of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Commercial and industrial		1	$	12	$	12		3	$	377	$	377
Residential mortgages		2		194		199		-		-		-
Total		3	$	206	$	211		3	$	377	$	377

Presented below and disaggregated by class is information regarding loans modified as TDRs that had payment defaults of 90 days or more within twelve months of restructuring during the three months ended March 31, 2015 and 2014 (dollars in thousands).

	Three Months Ended March 31,
	2015				2014
Defaulted TDRs	Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance
Commercial real estate		-	$	-		2	$	1,596
Total		-	$	-		2	$	1,596

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

The following table presents a summary of non-performing assets for each period (in thousands):

	March 31, 2015		December 31, 2014
Non-accrual loans	$	12,292	$	12,981
Non-accrual loans held for sale		-		-
Loans 90 days past due and still accruing		-		-
OREO		-		-
Total non-performing assets	$	12,292	$	12,981
TDRs accruing interest	$	9,418	$	9,380
TDRs non-accruing	$	9,323	$	10,293

16

At March 31, 2015 and December 31, 2014, non-accrual loans disaggregated by class were as follows (dollars in thousands):

	March 31, 2015										December 31, 2014
	Non-accrual loans		% of Total			Total Loans		% of Total Loans			Non-accrual loans		% of Total			Total Loans		% of Total Loans
Commercial and industrial	$	3,035		24.7	%	$	178,812		0.2	%	$	4,060		31.3	%	$	177,813		0.3	%
Commercial real estate		6,647		54.1			579,873		0.5			6,556		50.5			560,524		0.5
Multifamily		-		-			322,229		-			-		-			309,666		-
Mixed use commercial		-		-			35,333		-			-		-			34,806		-
Real estate construction		-		-			24,608		-			-		-			26,206		-
Residential mortgages		2,074		16.9			184,977		0.2			2,020		15.6			187,828		0.1
Home equity		414		3.3			49,440		-			303		2.3			50,982		0.1
Consumer		122		1.0			6,888		-			42		0.3			7,602		-
Total	$	12,292		100.0	%	$	1,382,160		0.9	%	$	12,981		100.0	%	$	1,355,427		1.0	%

Additional interest income of approximately $180 thousand and $494 thousand would have been recorded during the three months ended March 31, 2015 and 2014, respectively, if non-accrual loans had performed in accordance with their original terms.

At March 31, 2015 and December 31, 2014, past due loans disaggregated by class were as follows (in thousands).

	Past Due
March 31, 2015	30 - 59 days			60 - 89 days			90 days and over			Total			Current			Total
Commercial and industrial	$	8		$	379		$	3,035		$	3,422		$	175,390		$	178,812
Commercial real estate		-			-			6,647			6,647			573,226			579,873
Multifamily		-			-			-			-			322,229			322,229
Mixed use commercial		-			-			-			-			35,333			35,333
Real estate construction		-			-			-			-			24,608			24,608
Residential mortgages		505			-			2,074			2,579			182,398			184,977
Home equity		199			-			414			613			48,827			49,440
Consumer		10			-			122			132			6,756			6,888
Total	$	722		$	379		$	12,292		$	13,393		$	1,368,767		$	1,382,160
% of Total Loans		0.1	%		0.0	%		0.9	%		1.0	%		99.0	%		100.0	%

	Past Due
December 31, 2014	30 - 59 days			60 - 89 days			90 days and over			Total			Current			Total
Commercial and industrial	$	52		$	241		$	4,060		$	4,353		$	173,460		$	177,813
Commercial real estate		-			-			6,556			6,556			553,968			560,524
Multifamily		-			-			-			-			309,666			309,666
Mixed use commercial		-			-			-			-			34,806			34,806
Real estate construction		-			-			-			-			26,206			26,206
Residential mortgages		822			-			2,020			2,842			184,986			187,828
Home equity		-			112			303			415			50,567			50,982
Consumer		59			77			42			178			7,424			7,602
Total	$	933		$	430		$	12,981		$	14,344		$	1,341,083		$	1,355,427
% of Total Loans		0.1	%		0.0	%		1.0	%		1.1	%		98.9	%		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.

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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 in this category possess potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position at some future date. Special Mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. 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.

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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.

The Bank annually reviews the ratings on all loans greater than $500 thousand. Semi-annually, the Bank engages an independent third-party to review a significant portion of loans within the commercial and industrial, commercial real estate and real estate construction loan classes. Management uses the results of these reviews as part of its ongoing review process.

The following presents the Company’s loan portfolio credit risk profile by internally assigned grade disaggregated by class of loan at March 31, 2015 and December 31, 2014 (in thousands).

	March 31, 2015												December 31, 2014
	Grade												Grade
	Pass			Special mention			Substandard			Total			Pass			Special mention			Substandard			Total
Commercial and industrial	$	165,527		$	3,543		$	9,742		$	178,812		$	167,922		$	1,225		$	8,666		$	177,813
Commercial real estate		553,861			15,395			10,617			579,873			536,536			9,182			14,806			560,524
Multifamily		322,229			-			-			322,229			309,666			-			-			309,666
Mixed use commercial		35,313			-			20			35,333			34,806			-			-			34,806
Real estate construction		24,608			-			-			24,608			26,206			-			-			26,206
Residential mortgages		181,809			-			3,168			184,977			183,263			-			4,565			187,828
Home equity		48,021			-			1,419			49,440			49,569			-			1,413			50,982
Consumer		6,766			-			122			6,888			7,279			-			323			7,602
Total	$	1,338,134		$	18,938		$	25,088		$	1,382,160		$	1,315,247		$	10,407		$	29,773		$	1,355,427
% of Total		96.8	%		1.4	%		1.8	%		100.0	%		97.0	%		0.8	%		2.2	%		100.0	%

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. On December 31, 2012, the Company’s retirement plan was frozen such that no additional pension benefits would accumulate. For the three months ended March 31, 2015 and 2014, the Company’s net periodic pension credit was $111 thousand and $91 thousand, respectively.

In December 2014, the Company made an optional contribution of $1 million for the plan year ended September 30, 2015. No minimum contribution was required. The Company does not presently expect to contribute to its pension plan in 2015.

6. STOCK-BASED COMPENSATION

Stock Options

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. 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.

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No options were granted in 2015 or 2014. Options granted in 2013 and 2012 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.

The total intrinsic value of options exercised during the first three months of 2015 was $6 thousand. The total cash received from such option exercises was $19 thousand, excluding the tax benefit realized. In exercising those options, 1,000 shares of the Company’s common stock were issued. No stock options were exercised during the first three months of 2014.

Both plans provide for but do not require the grant of stock appreciation rights (“SARs”) that the holder may exercise instead of the underlying option. At March 31, 2015, there were 6,000 SARs outstanding related to options granted before 2011. The SARs had no intrinsic value at March 31, 2015. 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.

A summary of stock option activity follows:

	Number of Shares			Weighted-Average Exercise Price Per Share
Outstanding, January 1, 2015		251,100		$	16.33
Granted		-			-
Exercised		(1,000	)	$	18.18
Forfeited or expired		(10,000	)	$	22.84
Outstanding, March 31, 2015		240,100		$	16.06

The following summarizes shares subject to purchase from stock options outstanding and exercisable as of March 31, 2015:

		Outstanding					Exercisable
Range of Exercise Prices		Shares		Weighted-Average  Remaining  Contractual Life	Weighted-Average Exercise Price		Shares		Weighted-Average  Remaining  Contractual Life	Weighted-Average Exercise Price
$	10.00 - $14.00		120,000	6.9 years	$	11.97		83,334	6.9 years	$	12.45
$	14.01 - $20.00		98,100	8.3 years	$	17.47		42,438	8.2 years	$	16.73
$	20.01 - $30.00		5,000	3.8 years	$	28.30		5,000	3.8 years	$	28.30
$	30.01 - $40.00		17,000	1.8 years	$	33.12		17,000	1.8 years	$	33.12
			240,100	7.0 years	$	16.06		147,772	6.6 years	$	16.59

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Restricted Stock Awards

Under the Company’s Amended and Restated 2009 Stock Incentive Plan (the “2009 Plan”), the Company can award options, SARs and restricted stock. During the first three months of 2015, the Company awarded 51,562 shares of restricted stock to certain key employees. Generally, the restricted stock awards currently outstanding vest over a three-year period commencing one year from the date of grant at a rate of one-third per year. A summary of restricted stock activity follows:

	Number of Shares			Weighted-Average Grant-Date Fair Value
Nonvested, January 1, 2015		72,350		$	22.51
Granted		51,562		$	22.76
Vested		-			-
Forfeited or expired		(4,975	)	$	22.52
Nonvested, March 31, 2015		118,937		$	22.62

The Company recognizes compensation expense for the fair value of stock options and restricted stock on a straight line basis over the requisite service period of the grants. Compensation expense related to stock-based compensation amounted to $222 thousand and $165 thousand for the three months ended March 31, 2015 and 2014, respectively. The remaining unrecognized compensation cost of approximately $211 thousand and $2.1 million at March 31, 2015 related to stock options and restricted stock, respectively, will be expensed over the remaining weighted average vesting period of approximately 1.5 years and 2.4 years, respectively.

Under the 2009 Plan, a total of 500,000 shares of the Company’s common stock were reserved for issuance, of which 166,561 shares remain for possible issuance at March 31, 2015. There are no remaining shares reserved for issuance under the 1999 Stock Option Plan.

7. INCOME TAXES

The deferred tax assets and liabilities are netted and presented in a single amount which is included in deferred taxes in the accompanying consolidated statements of condition. The realization of deferred tax assets (“DTAs”) (net of a recorded valuation allowance) is largely dependent upon future taxable income, future reversals of existing taxable temporary differences and the ability to carry back losses to available tax years. In assessing the need for a valuation allowance, the Company considers positive and negative evidence, including taxable income in carryback years, scheduled reversals of deferred tax liabilities, expected future taxable income and tax planning strategies. At March 31, 2015 the Company had no remaining Federal net operating loss carryforwards and had net operating loss carryforwards of approximately $23.0 million for New York State (“NYS”) income tax purposes, which may be applied against future taxable income. The Company has a full valuation allowance of $1.0 million, tax effected, on the NYS net operating loss carryforward due to the Company’s significant tax-exempt investment income. The valuation allowance may be reversed to income in future periods to the extent that the related DTAs are realized or when the Company returns to consistent, taxable earnings in NYS. The NYS unused net operating loss carryforwards are expected to expire in varying amounts through the year 2032.

The Company recorded income tax expense of $1.2 million in the first quarter of 2015 resulting in an effective tax rate of 23.6% versus an income tax expense of $1.1 million and an effective tax rate of 23.0% in the comparable period a year ago. On March 31, 2014, the Governor of NYS signed legislation which includes major reforms to the state’s corporate income tax system.  In addition, the new budget law simplifies the code by setting forth a single apportionment factor.  The corporate tax rate will be lowered from 7.1% to 6.5% in 2016.  Furthermore, for community banks (all banks and thrifts with $8 billion or less in assets) there is a subtraction modification for a portion of interest earned on all residential and small business loans with a principal amount of up to $5 million made to New York borrowers. All banks in this category that had a REIT on April 1, 2014, and in the applicable tax year would instead get a deduction based on their REIT's dividends paid deduction. The Company had a qualifying REIT on April 1, 2014 and has less than $8 billion in assets. If a change in a tax law or rate occurs, any existing deferred tax liability or asset must be adjusted. The effect is reflected in operations in the period of the enactment of the change in the tax law or rate. As such, the Company made an adjustment to increase its DTAs resulting in a net income tax benefit of $462 thousand in the first quarter of 2014. Offsetting the net income tax benefit was a $454 thousand income tax expense related to an adjustment of the Company’s stock based compensation included in the DTA, primarily for stock options that had expired or been forfeited by former employees. The adjustment relates primarily to prior periods, but management has determined that it is not material, and as such, included it in the 2014 first quarter’s results.

The Company had unrecognized tax benefits of approximately $34 thousand for all periods presented.  There is no accrued interest relating to uncertain tax positions as of March 31, 2015.

The Company files income tax returns in the U.S. federal jurisdiction and in New York State. Federal returns are subject to audits by tax authorities beginning with the tax year 2013. New York State returns are subject to audits beginning with the 2011 tax year. It is not anticipated that the unrecognized tax benefits will significantly change over the next 12 months.

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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, tier 1 and common equity tier 1 capital, as defined in the federal banking regulations, to risk-weighted assets and of tier 1 capital to adjusted average assets (leverage). Management believes, as of March 31, 2015, that the Company and the Bank met all such capital adequacy requirements to which it is subject.

In July 2013, the Office of the Comptroller of the Currency (“OCC”) approved new rules on regulatory capital applicable to national banks, implementing Basel III. Most banking organizations were required to apply the new capital rules on January 1, 2015. The final rules set a new common equity tier 1 requirement and higher minimum tier 1 requirements for all banking organizations. They also place 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 rules revise the prompt corrective action framework to incorporate the new regulatory capital minimums. They also enhance risk sensitivity and address 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 Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The Company’s implementation of the new rules on January 1, 2015 did not have a material impact on our capital needs.

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

	Actual capital ratios					Minimum for capital adequacy					Minimum to be Well Capitalized under prompt corrective action provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
March 31, 2015
Total capital to risk-weighted assets	$	209,314		13.63	%	$	122,866		8.00	%	$	153,582		10.00	%
Tier 1 capital to risk-weighted assets		190,111		12.38	%		92,149		6.00	%		122,866		8.00	%
Common equity tier 1 capital to risk-weighted assets		190,111		12.38	%		69,112		4.50	%		99,829		6.50	%
Tier 1 capital to adjusted average assets (leverage)		190,111		10.02	%		75,915		4.00	%		94,894		5.00	%
December 31, 2014
Total capital to risk-weighted assets	$	201,476		13.25	%	$	121,608		8.00	%	$	152,010		10.00	%
Tier 1 capital to risk-weighted assets		182,469		12.00	%		60,804		4.00	%		91,206		6.00	%
Tier 1 capital to adjusted average assets (leverage)		182,469		9.96	%		73,312		4.00	%		91,640		5.00	%

The Company’s tier 1 leverage, common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios were 10.13%, 12.52%, 12.52% and 13.77%, respectively, at March 31, 2015. The Company’s tier 1 leverage, tier 1 risk-based and total risk-based capital ratios were 10.04%, 12.10% and 13.35%, respectively, at December 31, 2014.

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 for the retirement of any preferred stock. In addition, a national bank may not pay dividends in an amount greater than its undivided profits or declare any dividends if such declaration would leave the bank inadequately capitalized.

9. 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.

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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.

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

	Level in	March 31, 2015				December 31, 2014
	Fair Value Hierarchy	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets:
Cash and due from banks	Level 1	$	59,024	$	59,024	$	54,516	$	54,516
Federal funds sold	Level 2		-		-		1,000		1,000
Interest-bearing time deposits in other banks	Level 2		10,000		10,009		10,000		10,017
Federal Reserve Bank, Federal Home Loan Bank and other stock	N/A		6,800		N/A		8,600		N/A
Investment securities held to maturity	Level 2		62,191		65,414		62,270		64,796
Investment securities available for sale	Level 2		291,557		291,557		298,670		298,670
Loans held for sale	Level 2		2,836		2,836		26,495		26,495
Loans, net of allowance	Level 2, 3 (1)		1,362,835		1,364,305		1,336,227		1,329,041
Accrued interest and loan fees receivable	Level 2		6,482		6,482		5,676		5,676
Financial Liabilities:
Non-maturity deposits	Level 2		1,368,484		1,368,484		1,337,301		1,337,301
Time deposits	Level 2		223,188		223,570		218,759		219,089
Borrowings	Level 2		90,000		90,003		130,000		130,004
Accrued interest payable	Level 2		131		131		136		136
Derivatives	Level 3		752		752		752		752

(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.

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For securities held to maturity and securities available for sale, the fair value equals quoted market price if available. If a quoted market price is not available, fair value is estimated using a quoted market price for similar securities. For cash and due from banks, federal funds sold, accrued interest and loan fees receivable, non-maturity deposits and accrued interest payable, the carrying amount is a reasonable estimate of fair value. Determining the fair value of Federal Reserve Bank, Federal Home Loan Bank and other stock is not practicable due to restrictions placed on its transferability. Interest-bearing time deposits in other banks, time deposits and borrowings 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. Assumptions regarding credit risk, cash flows, and discount rates are made using availablemarket information and specific borrower information.

Loans identified as impaired are measured using one of three methods: the fair value of collateral less estimated costs to sell, the present value of expected future cash flows or the loan’s observable market price. Those measured using the fair value of collateral or the loan’s observable market price 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.

For the periods presented, loans held for sale were performing and carried at cost. The carrying cost is a reasonable estimate of fair value due to their short-term nature.

During 2013, the Company entered into derivative swap contracts with the purchaser of its Visa Class B shares. The fair value of these derivatives is measured using an internal model that includes the use of probability weighted scenarios for estimates of Visa’s aggregate exposure to the litigation matters, with consideration of amounts funded by Visa into its escrow account for this litigation. At March 31, 2015, the Company estimates a fair value for these derivatives at approximately 10% of the net proceeds from the Company’s sale of the related Visa Class B shares. Since this estimation process requires application of judgment in developing significant unobservable inputs used to determine the possible outcomes and the probability weighting assigned to each scenario, these derivatives have been classified as Level 3 within the valuation hierarchy. (See also Note 3. Investment Securities contained herein.)

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

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

Assets:	March 31, 2015		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Impaired loans	$	3,338	$	3,338
Total	$	3,338	$	3,338

Assets:	December 31, 2014		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Impaired loans	$	3,333	$	3,333
Total	$	3,333	$	3,333

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The Company had no liabilities measured at fair value on a non-recurring basis at March 31, 2015 and December 31, 2014.

The following presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis (dollars in thousands):

	Fair Value at
Assets:	March 31, 2015		December 31, 2014		Valuation Technique	Unobservable Inputs	Discount
Impaired loans:
Commercial and industrial	$	31	$	40	Third party appraisal and/or internal evaluation	Discount to appraised value (1); estimated selling costs	5.6% to 50%
Residential mortgages		3,107		3,097	Third party appraisal	Discount to appraised value	25%
Home equity		104		98	Third party appraisal	Discount to appraised value	25%
Consumer		96		98	Third party appraisal	Discount to appraised value	25%
Total	$	3,338	$	3,333

(1) The Company also makes adjustments to the appraised value based upon evaluation of corporate assets, such as inventory and accounts receivable, and various other information, such as market conditions and other factors. Higher discounts may be applied to certain assets, such as inventory and accounts receivable.

The following presents fair value measurements on a recurring basis at March 31, 2015 and December 31, 2014 (in thousands):

			Fair Value Measurements Using
Assets:	March 31, 2015		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government agency securities	$	38,709	$	38,709	$	-
Obligations of states and political subdivisions		133,924		133,924		-
Collateralized mortgage obligations		21,391		21,391		-
Mortgage-backed securities		91,084		91,084		-
Corporate bonds		6,449		6,449		-
Total	$	291,557	$	291,557	$	-
Liabilities:
Derivatives		752	$	-	$	752
Total	$	752	$	-	$	752

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			Fair Value Measurements Using
Assets:	December 31, 2014		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government agency securities	$	41,577	$	41,577	$	-
Obligations of states and political subdivisions		137,769		137,769		-
Collateralized mortgage obligations		21,997		21,997		-
Mortgage-backed securities		90,919		90,919		-
Corporate bonds		6,408		6,408		-
Total	$	298,670	$	298,670	$	-
Liabilities:
Derivatives		752	$	-	$	752
Total	$	752	$	-	$	752

Reconciliations for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) follow (in thousands).

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Three Months Ended March 31,
	2015		2014
	Liabilities Derivatives		Liabilities Derivatives
Balance, January 1	$	752	$	932
Net change		-		-
Balance, March 31	$	752	$	932

10. LEGAL PROCEEDINGS

Certain lawsuits and claims arising in the ordinary course of business may be filed or pending against us or our affiliates from time to time. In accordance with applicable accounting guidance, we establish accruals for all lawsuits, claims and expected settlements when we believe it is probable that a loss has been incurred and the amount of the loss is reasonably estimable. When a loss contingency is not both probable and estimable, we do not establish an accrual. Any such loss estimates are inherently uncertain, based on currently available information and are subject to management’s judgment and various assumptions. Due to the inherent subjectivity of these estimates and unpredictability of outcomes of legal proceedings, any amounts accrued may not represent the ultimate resolution of such matters.

To the extent we believe any potential loss relating to such lawsuits and claims may have a material impact on our liquidity, consolidated financial position, results of operations, and/or our business as a whole and is reasonably possible but not probable, we disclose information relating to any such potential loss, whether in excess of any established accruals or where there is no established accrual. We also disclose information relating to any material potential loss that is probable but not reasonably estimable. Where reasonably practicable, we will provide an estimate of loss or range of potential loss. No disclosures are generally made for any loss contingencies that are deemed to be remote.

Based upon information available to us and our review of lawsuits and claims filed or pending against us to date, we have not recognized a material accrual liability for these matters, nor do we currently expect it is reasonably possible that these matters will result in a material liability to the Company. However, the outcome of litigation and other legal and regulatory matters is inherently uncertain, and it is possible that one or more of such matters currently pending or threatened could have an unanticipated material adverse effect on our liquidity, consolidated financial position, results of operations, and/or our business as a whole, in the future.

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11. BORROWINGS

The following summarizes borrowed funds at March 31, 2015 and December 31, 2014 (dollars in thousands):

March 31, 2015	Federal Home Loan Bank Borrowings			Federal Funds Purchased			Total
Daily average outstanding	$	124,111		$	-		$	124,111
Total interest cost		108			-			108
Average interest rate paid		0.35	%		-	%		0.35	%
Maximum amount outstanding at any month-end	$	155,000		$	-		$	155,000
March 31 balance		90,000			-			90,000
Weighted-average interest rate on balances outstanding		0.34	%		-	%		0.34	%

December 31, 2014	Federal Home Loan Bank Borrowings			Federal Funds Purchased			Total
Daily average outstanding	$	13,051		$	8		$	13,059
Total interest cost		48			-			48
Average interest rate paid		0.37	%		0.46	%		0.37	%
Maximum amount outstanding at any month-end	$	130,000		$	-		$	130,000
December 31 balance		130,000			-			130,000
Weighted-average interest rate on balances outstanding		0.32	%		-	%		0.32	%

Assets pledged as collateral to the Federal Home Loan Bank (“FHLB”) at March 31, 2015 and December 31, 2014 totaled $567 million and $505 million, respectively, consisting of eligible loans and investment securities as determined under FHLB borrowing guidelines. The Company had $90 million and $130 million in FHLB borrowings at March 31, 2015 and December 31, 2014, respectively.

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, that are beyond the Company’s control and 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: increased capital requirements mandated by the Company’s regulators; the Company’s ability to raise capital; competitive factors, including price competition; 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 or changes in law, regulations or regulatory practices; the Company’s ability to attract and retain key management and staff; any failure by the Company to maintain effective internal control over financial reporting; larger-than-expected losses from the sale of assets; 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 non-GAAP financial measures of the Company’s tangible common equity (“TCE”)  ratio, tangible common equity, tangible assets, core net income, core FTE net interest income, core FTE net interest margin, core operating expenses, core non-interest income, core FTE non-interest income and core operating efficiency 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 generally accepted accounting principles in the United States (“U.S. GAAP”). The Company believes that these non-GAAP financial measures provide 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 U.S. GAAP and may not be comparable to similarly titled measures used by other financial institutions.

With respect to the calculations and reconciliations of tangible common equity, tangible assets and the TCE ratio, please see Liquidity and Capital Resources contained herein. For the calculation and reconciliation of core FTE net interest margin, please see Material Changes in Results of Operations contained herein. For all other calculations and reconciliations pertaining to non-GAAP financial measures, please see Executive Summary contained herein.

Executive Summary - The Company is a one-bank holding company incorporated in 1985. The Company operates as the parent for its wholly owned subsidiary, the Bank, a national bank founded in 1890. The income of the Company is primarily derived through the operations of the Bank and the REIT.

The Bank is a full-service bank serving the needs of its local residents through 26 branches in Nassau and Suffolk Counties, New York and loan production offices in Garden City and Melville, New York. The Bank’s 26 branches include the two opened in Melville and Garden City in June 2014 and December 2013, respectively. The Bank offers a full line of domestic commercial and retail banking services. The Bank’s primary market area includes all of Suffolk County and the adjacent markets of Nassau County and New York City. The Bank makes commercial real estate floating and fixed rate loans, multifamily and mixed use commercial loans primarily in the boroughs of New York City, 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 floating and fixed 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, loan production offices were recently opened in Garden City and Melville. As part of the Company’s strategy to move westward, the loan production office in Garden City serves the major business markets in central and western Long Island. Consistent with that strategy, the Company expects to open a loan production office and business banking center branch in Long Island City, Queens, in the second quarter of this year to serve Queens and nearby Brooklyn.

The Bank finances most of its activities through a combination of deposits, including demand, savings, N.O.W. and money market deposits as well as time deposits, and short-term borrowings which could include federal funds with correspondent banks, securities sold under agreements to repurchase and Federal Home Loan Bank (“FHLB”) borrowings. The Company’s chief competition includes local banks within its market area, as well as New York City money center banks and regional banks.

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Financial Performance Summary

As of or for the quarters ended March 31, 2015 and 2014

(dollars in thousands, except per share data)

	Quarters ended March 31,						Over/ (under)
	2015			2014			2014
Revenue (1)	$	18,608		$	18,390			1.2	%
Operating expenses	$	13,108		$	13,309			(1.5	%)
Provision for loan losses	$	250		$	250			0.0	%
Net income	$	4,009		$	3,720			7.8	%
Net income per common share - diluted	$	0.34		$	0.32			6.3	%
Return on average assets		0.85	%		0.89	%		(4	) bp
Return on average stockholders' equity		8.79	%		8.81	%		(2	) bp
Tier 1 leverage ratio		10.13	%		10.27	%		(14	) bp
Common equity tier 1 risk-based capital ratio		12.52	%		N/A			N/A
Tier 1 risk-based capital ratio		12.52	%		13.57	%		(105	) bp
Total risk-based capital ratio		13.77	%		14.82	%		(105	) bp
Tangible common equity ratio (non-GAAP)		9.77	%		9.99	%		(22	) bp
Total stockholders' equity/total assets (2)		9.91	%		10.15	%		(24	) bp

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

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

(2) The ratio of total stockholders' equity to total assets is the most comparable U.S. GAAP measure to the non-GAAP tangible common equity ratio presented herein.

At March 31, 2015, the Company, on a consolidated basis, had total assets of $1.9 billion, total deposits of $1.6 billion and total stockholders’ equity of $188 million. The Company recorded net income of $4.0 million, or $0.34 per diluted common share, for the first quarter of 2015, compared to $3.7 million, or $0.32 per diluted common share, for the same period in 2014. The 7.8% increase in first quarter 2015 reported earnings versus the comparable 2014 period resulted principally from a $1.2 million increase in net interest income coupled with a $201 thousand reduction in total operating expenses in 2015. Partially offsetting these positive factors was a $1.0 million reduction in non-interest income in 2015 when compared to the first quarter of 2014. Excluding the first quarter 2014 gain on the sale of a closed branch building and an expense credit associated with branch consolidation costs previously recorded, core net income increased by 29.5% to $4.0 million in the first quarter of 2015 from $3.1 million in the comparable 2014 period. (See also Non-GAAP Disclosure contained herein.)

	Three Months Ended March 31,
(in thousands)	2015		2014
CORE NET INCOME:
Net income, as reported	$	4,009	$	3,720
Less:
Gain on sale of branch building		-		(642	)
Branch consolidation costs (credits)		-		(170	)
Total adjustments, before income taxes		-		(812	)
Adjustment for reported effective income tax rate		-		(187	)
Total adjustments, after income taxes		-		(625	)
Core net income	$	4,009	$	3,095

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The Company’s return on average assets and return on average common stockholders’ equity were 0.85% and 8.79%, respectively, in the first quarter of 2015 versus 0.89% and 8.81%, respectively, in the first quarter of 2014.

The Company continues to increase market share by preserving our eastern Suffolk lending franchise while simultaneously expanding west. This strategy has allowed the Company to expand into markets in Nassau County and New York City that are very attractive from a demographic standpoint and have an abundance of small and middle market businesses, the kinds of businesses that have comprised the Company’s core customer base throughout its history.

The Company experienced an increase in the total loan portfolio of $27 million, from $1.355 billion at December 31, 2014 to $1.382 billion at March 31, 2015, a 2.0% quarterly growth rate. Total loans at March 31, 2015 represented a 22.3% increase from the comparable quarter in 2014. Considering the unusually harsh weather experienced in the Company’s local markets during the first quarter of 2015, this performance is noteworthy. Many loans originally scheduled to close in the first quarter of 2015 slipped into the second quarter, as many customers experienced delays in normal business activity as a consequence of the severe winter weather. As a result, the Company’s loan pipeline is currently at the highest level it has been in several years and the Company remains optimistic about the prospect for strong loan growth during the remainder of 2015.

The credit quality of the Company’s loan portfolio remains strong. Total non-accrual loans at March 31, 2015 were $12.3 million, or 0.89% of total loans, with a substantial majority of these loans both well collateralized and performing under negotiated workout agreements with cooperative borrowers. Early delinquencies (30-89 days past due), which are managed aggressively as a potential harbinger of future credit issues, continue to be well controlled at $1.1 million, or 0.08% of total loans. Given the improving economic conditions in its markets, as well as the current profile of its loan portfolio, the Company believes it is well reserved. The allowance for loan losses at March 31, 2015 was $19.3 million, or 1.40% of total loans and 157% of total non-accrual loans.

The Company believes its core deposit franchise is one of the strongest among all community banks, both within the Company’s region and beyond its markets. This will serve the Company well when interest rates inevitably rise. The first quarter has traditionally been the Company’s slowest time of the year for deposit generation because of the seasonality associated with businesses on the east end of Long Island, including the Hamptons. But it is clear that, as the Company expands west and generates a growing percentage of deposits from new lending customers, the seasonal winter downturn in overall deposit levels is becoming less pronounced. It is also important to note that, as excess liquidity is utilized and the funding mix starts to reflect increased borrowings, growth in core deposits will become increasingly important to the Company. As a result, new incentives for core deposit generation for both lending and retail teams have recently been implemented by the Company, and the initial results are encouraging.

Core deposits, consisting of demand, N.O.W., savings and money market deposits, totaled $1.4 billion at March 31, 2015, representing 86% of total deposits at that date. Demand deposits totaled $683 million at March 31, 2015, or 43% of total deposits. The deposit product mix continues to be an important strength of the Company and resulted in an exceptionally low overall average cost of funds of 16 basis points during the first quarter of 2015.

The Company’s management continues to work hard to reduce operating expenses and increase efficiency. The expansion strategies that have resulted in the strong financial performance of the last few years require significant investment, particularly in technology upgrades, office space as the Company moves west, regulatory resources and, most importantly, attracting the best lending and credit professionals to drive performance. Nevertheless, management has been successful in finding ways to fund these investments by reducing expenses in other areas. Total operating expenses during the first quarter of 2015 were $13.1 million, compared to $13.3 million in the first quarter of 2014, a reduction of $201 thousand notwithstanding the significant investments made over the last year to generate increased revenues. This improvement in operating leverage translated into an improvement in the Company’s core operating efficiency ratio during the first quarter of 2015 to 66.4%, from 72.5% during the first quarter of 2014. (See also Non-GAAP Disclosure contained herein.) As the Company moves forward, management will continue to balance the need for investment to generate revenue with expense reductions in other areas. The Company’s management has proven its ability to do this and believes it will build shareholder value over the long term.

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	Three Months Ended March 31,
($ in thousands)	2015			2014
Core operating expenses:
Total operating expenses	$	13,108		$	13,309
Adjust for branch consolidation costs (credits)		-			170
Core operating expenses		13,108			13,479
Core non-interest income:
Total non-interest income		2,091			3,092
Adjust for gain on sale of branch building		-			(642	)
Core non-interest income		2,091			2,450
Adjust for tax-equivalent basis		202			212
Core FTE non-interest income		2,293			2,662
Core net interest income:
FTE net interest income		17,496			16,273
Less interest on loans returning to accrual status		(20	)		(341	)
Core FTE net interest income		17,476			15,932
Core operating efficiency ratio:
Core operating expenses		13,108			13,479
Core FTE net interest income		17,476			15,932
Core FTE non-interest income		2,293			2,662
Less net gain on sale of securities available for sale		(26	)		-
Core operating expenses/sum of other items above		66.39	%		72.49	%

Critical Accounting Policies, Judgments and Estimates - The Company’s accounting and reporting policies conform to U.S. GAAP and general practices within the banking 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 - 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 quarterly 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 troubled debt restructurings (“TDRs”) are evaluated individually for impairment. 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. These classes are commercial and industrial, commercial real estate, multifamily, mixed use commercial, real estate construction, residential mortgages, home equity and consumer loans.

The allowance for loan losses consists of specific and general components, as well as an unallocated component. 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 or liquidation of collateral. Impaired loans that are collateral dependent are reviewed based on the fair market value of 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 estimated 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. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

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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.

Other-Than-Temporary Impairment (“OTTI”) of Investment 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 income 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 $1.9 billion at March 31, 2015. When compared to December 31, 2014, total assets decreased by $3 million. This change was primarily due to decreases in loans held for sale and investment securities of $24 million and $7 million, respectively, largely offset by loan growth of $27 million.

The decrease in loans held for sale reflected the sale of $24 million in multifamily loans, at a premium, in the first quarter of 2015. Total investment securities were $354 million at March 31, 2015 and $361 million at December 31, 2014. The decrease in the investment portfolio largely reflected maturities and calls of municipal obligations and U.S. Government agency securities totaling $7 million coupled with principal paydowns of collateralized mortgage obligations and mortgage-backed securities of U.S. Government-sponsored enterprises totaling $2 million for the first three months of 2015. The interest rate environment had a positive impact of $2 million on the fair value of the Company’s available for sale investment portfolio at March 31, 2015 compared to year-end 2014.

Total loans were $1.382 billion at March 31, 2015 compared to $1.355 billion at December 31, 2014. The increase in the loan portfolio was primarily due to growth of commercial real estate and multifamily loans of $19 million and $13 million, respectively, in the first quarter of 2015.

At March 31, 2015, total deposits were $1.6 billion, an increase of $36 million when compared to December 31, 2014. This increase was primarily due to higher balances of savings, N.O.W. and money market deposits of $13 million, $11 million and $8 million, respectively. Core deposit balances, which consist of demand, savings, N.O.W. and money market deposits, represented 86% of total deposits at March 31, 2015 and December 31, 2014. Demand deposit balances represented 43% and 44% of total deposits at March 31, 2015 and December 31, 2014, respectively. At March 31, 2015 and December 31, 2014, the Company had $90 million and $130 million, respectively, in overnight borrowings used to fund the growth in the Company’s loan portfolio.

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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, decreased to $302 million at March 31, 2015 compared to $311 million at December 31, 2014. These liquid assets may include assets that have been pledged against municipal deposits or short-term borrowings. In addition, the Company has pledged U.S. Government agency securities held in its available for sale portfolio, with a market value of approximately $3 million at March 31, 2015, as collateral for the derivative swap contracts. Liquidity is also provided by the maintenance of a base of core deposits, maturing short-term assets including cash and due from banks, the ability to sell or pledge marketable assets and access to lines of credit.

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

The Company’s primary sources of funds are cash provided by deposits and borrowings, proceeds from maturities and sales of securities available for sale and cash provided by operating activities. At March 31, 2015, total deposits were $1.6 billion, an increase of $36 million when compared to December 31, 2014. Of the $223 million in total time deposits at March 31, 2015, $191 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 March 31, 2015 and December 31, 2014, the Company had $90 million and $130 million, respectively, in overnight borrowings used to fund the growth in the Company’s loan portfolio. For the three months ended March 31, 2015 and 2014, proceeds from sales and maturities of securities available for sale totaled $7 million and $6 million, respectively.

The Company’s primary uses of funds are for the origination of loans and the purchase of investment securities. For the three months ended March 31, 2015, the Company had net loan originations for portfolio of $27 million compared to $61 million for the same period in 2014. The Company did not purchase any investment securities during the three months ended March 31, 2015. For the three months ended March 31, 2014, the Company purchased investment securities totaling $3 million.

The Bank’s Asset/Liability and Funds Management Policy establishes specific policies and operating procedures governing liquidity levels to assist management in developing plans to address future and current liquidity needs. Management monitors the rates and cash flows from the loan and investment portfolios while also examining the maturity structure and volatility characteristics of liabilities to develop an optimum asset/liability mix. Available funding sources include retail, commercial and municipal deposits, purchased liabilities and stockholders’ equity. At March 31, 2015, access to approximately $567 million in FHLB lines of credit for overnight or term borrowings with maturities of up to thirty years was available. At March 31, 2015, approximately $60 million and $10 million in unsecured and secured lines of credit, respectively, extended by correspondent banks were also available to be utilized, if needed, for short-term funding purposes. At March 31, 2015, $90 million in overnight borrowings were outstanding with the FHLB. No borrowings were outstanding under lines of credit with correspondent banks.

The Bank also has the ability to access the brokered deposit market. Deposits gathered through the Certificate of Deposit Account Registry Service (“CDARS”) are considered for regulatory purposes to be brokered deposits. At March 31, 2015, the Bank had $5 million in CDARS deposits outstanding.

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 was $188 million at March 31, 2015 compared to $183 million at December 31, 2014. The increase in stockholders’ equity versus December 31, 2014 was due to net income, net of dividends paid, recorded during 2015 coupled with a $1 million decrease in accumulated other comprehensive loss, net of tax. The decrease in accumulated other comprehensive loss at March 31, 2015 resulted primarily from the positive impact of the interest rate environment in 2015 on the value of the Company’s available for sale investment portfolio.

The Company and the Bank are subject to regulatory capital requirements. The Company’s tier 1 leverage, common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios were 10.13%, 12.52%, 12.52% and 13.77%, respectively, at March 31, 2015. The Company’s capital ratios exceeded all regulatory requirements at March 31, 2015. The Bank’s tier 1 leverage, common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios were 10.02%, 12.38%, 12.38% and 13.63%, respectively, at March 31, 2015. Each of these ratios exceeds the regulatory guidelines for a well-capitalized institution, the highest regulatory capital category.

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The Company did not repurchase any shares of its common stock during the first three months of 2015. 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.

The Company’s tangible common equity ratio was 9.77% at March 31, 2015 compared to 9.50% at December 31, 2014 and 9.99% at March 31, 2014. 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 U.S. 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 U.S. GAAP. Set forth below are the reconciliations of tangible common equity to U.S. GAAP total common stockholders’ equity and tangible assets to U.S. GAAP total assets at March 31, 2015 (in thousands). (See also Non-GAAP Disclosure contained herein.)

Total stockholders' equity	$	187,560		Total assets	$	1,891,957		9.91	% (1)
Less: intangible assets		(3,043	)	Less: intangible assets		(3,043	)
Tangible common equity	$	184,517		Tangible assets	$	1,888,914		9.77	%

(1)  The ratio of total stockholders' equity to total assets is the most comparable U.S. GAAP measure to the non-GAAP tangible common equity ratio presented herein.

All dividends must conform to applicable statutory requirements. The Company’s ability to pay dividends to stockholders depends on the Bank’s ability to pay dividends to the Company. Under 12 USC 56-9, a national bank may not pay a dividend on its common stock if the dividend would exceed net undivided profits then on hand. Further, under 12 USC 60, a national bank must obtain prior approval from the OCC to pay dividends on either common or preferred stock that would exceed the bank’s net profits for the current year combined with retained net profits (net profits minus dividends paid during that period) of the prior two years. 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 for the retirement of any preferred stock. In addition, a national bank may not pay dividends in an amount greater than its undivided profits or declare any dividends if such declaration would leave the bank inadequately capitalized.The Company’s Board of Directors declared a quarterly cash dividend of $0.06 per share in the first quarter of 2015. No dividends were declared in the first quarter of 2014.

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

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the customer. Collateral required varies, but may include accounts receivable, inventory, equipment, real estate and income-producing commercial properties. At March 31, 2015 and December 31, 2014, commitments to originate loans and commitments under unused lines of credit for which the Bank is obligated amounted to approximately $158 million and $180 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 March 31, 2015 and December 31, 2014, letters of credit outstanding were approximately $16 million and $17 million, respectively.

34

Material Changes in Results of Operations – Comparison of the Quarters Ended March 31, 2015 and 2014 - The Company recorded net income of $4.0 million during the first quarter of 2015 versus $3.7 million in the comparable year ago period. The 7.8% improvement in first quarter 2015 net income resulted principally from a $1.2 million increase in net interest income coupled with a $201 thousand decrease in total operating expenses in 2015. Partially offsetting the foregoing improvements was a $1.0 million decrease in non-interest income in the first quarter of 2015, largely the result of a $642 thousand gain on the sale of a branch building in the first quarter of 2014 and a $279 thousand reduction in fiduciary fee income due to the sale of the Company’s wealth management business in the fourth quarter of 2014. The Company’s effective tax rate increased nominally to 23.6% in 2015 from 23.0% a year ago.  A $250 thousand provision for loan losses was recorded in the first quarter of 2015 and 2014.

The $1.2 million or 8.0% improvement in first quarter 2015 net interest income resulted from a $199 million increase in average total interest-earning assets, offset in part by a 19 basis point contraction in the Company’s net interest margin to 4.02% in 2015 from 4.21% in 2014. Excluding the receipt of interest income on loans returning to accrual status, the Company’s core net interest margin was 4.01% in the first quarter of 2015 as compared to 4.12% in the first quarter of 2014. (See also Non-GAAP Disclosure contained herein.)

	Three Months Ended March 31,
	2015			2014
Core net interest margin:
FTE net interest margin		4.02	%		4.21	%
Less interest on loans returning to accrual status		(0.01	)		(0.09	)
Core FTE net interest margin		4.01	%		4.12	%

The Company’s first quarter 2015 average total interest-earning asset yield was 4.17% versus 4.38% in the comparable 2014 quarterly period. A lower average yield on the Company’s loan portfolio in the first quarter of 2015 versus the first quarter of 2014, down 49 basis points to 4.35%, was the primary driver of the reduction in the interest-earning assets yield.  The Company’s average balance sheet mix continued to improve as average loans increased by $284 million (26.1%) versus first quarter 2014 and low-yielding overnight interest-bearing deposits and federal funds sold declined by $34 million (56.8%) during the same period. Federal funds sold and interest-bearing deposits represented 1% of average total interest-earning assets in the first quarter of 2015 versus 4% a year ago. The average securities portfolio decreased by $56 million to $359 million in the first quarter of 2015 versus the comparable 2014 period.  The average yield on the investment portfolio was 3.81% in the first quarter of 2015 versus 3.76% a year ago.

The Company’s average cost of total interest-bearing liabilities declined by two basis points to 0.27% in the first quarter of 2015 versus 0.29% in the first quarter of 2014. The Company’s total cost of funds, among the lowest in the industry, declined to 0.16% in the first quarter of 2015 from 0.17% a year ago, largely because of the Company’s continued focus on lower-cost core deposits. Average core deposits increased $78 million to $1.4 billion during the first quarter of 2015 versus the comparable 2014 period, with average demand deposits representing 43% of first quarter 2015 average total deposits. Total deposits increased by $68 million or 4.5% to $1.6 billion at March 31, 2015 versus March 31, 2014. Core deposit balances, which represented 86% of total deposits at March 31, 2015, grew by $73 million or 5.7% during the same period. Average borrowings increased $124 million during the first quarter of 2015 compared to 2014 and were used to fund the growth in the Company’s loan portfolio, which increased $284 million on average during that same period.

35

NET INTEREST INCOME ANALYSIS

For the Three Months Ended March 31, 2015 and 2014

(unaudited, dollars in thousands)

	2015								2014
	Average Balance		Interest			Average Yield/Cost			Average Balance		Interest			Average Yield/Cost
Assets:
Interest-earning assets:
Investment securities (1)	$	359,413	$	3,378			3.81	%	$	415,385	$	3,850			3.76	%
Federal Reserve Bank,  Federal Home Loan Bank and other stock		8,335		60			2.92			2,863		38			5.38
Federal funds sold and interest-bearing deposits		26,163		23			0.36			60,551		46			0.31
Loans (2)		1,372,365		14,711			4.35			1,088,253		12,976			4.84
Total interest-earning assets		1,766,276	$	18,172			4.17	%		1,567,052	$	16,910			4.38	%
Non-interest-earning assets		139,127								128,434
Total assets	$	1,905,403							$	1,695,486
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings, N.O.W. and money market deposits	$	688,628	$	274			0.16	%	$	668,941	$	292			0.18	%
Time deposits		215,160		294			0.55			226,191		345			0.62
Total savings and time deposits		903,788		568			0.25			895,132		637			0.29
Borrowings		124,111		108			0.35			-		-			-
Total interest-bearing liabilities		1,027,899		676			0.27			895,132		637			0.29
Demand deposits		668,613								610,739
Other liabilities		23,949								18,423
Total liabilities		1,720,461								1,524,294
Stockholders' equity		184,942								171,192
Total liabilities and stockholders' equity	$	1,905,403							$	1,695,486
Total cost of funds							0.16	%							0.17	%
Net interest rate spread							3.90	%							4.09	%
Net interest income/margin				17,496			4.02	%				16,273			4.21	%
Less tax-equivalent basis adjustment				(979	)							(975	)
Net interest income			$	16,517							$	15,298

(1) Interest on securities includes the effects of tax-equivalent basis adjustments of $837 and $876 in 2015 and 2014, respectively.

(2) Interest on loans includes the effects of tax-equivalent basis adjustments of $142 and $99 in 2015 and 2014, respectively.

The $250 thousand provision for loan losses recorded during the first quarter of 2015 was primarily due to the growth in the loan portfolio experienced during the past three months. The Company also recorded a provision for loan losses of $250 thousand in the first quarter of 2014. The adequacy of the provision and the resulting allowance for loan losses, which was $19.3 million at March 31, 2015, is determined by management’s ongoing review of the loan portfolio, including identification and review of individual problem situations that may affect a borrower’s ability to repay, delinquency and non-performing loan data including the current status of criticized and classified loans, collateral values and changes in the size and mix of the loan portfolio. (See also Critical Accounting Policies, Judgments and Estimates and Asset Quality contained herein.)

Non-interest income declined by $1.0 million or 32.4% in the first quarter of 2015 versus the comparable 2014 period.  This reduction was due principally to a $642 thousand pre-tax gain recorded in 2014 on the sale of a closed branch facility coupled with a $279 thousand reduction in fiduciary fee income. Excluding the impact of these two items, non-interest income declined by $80 thousand or 3.7% in 2015. This decline was principally due to a reduction in deposit service charge income resulting from lower overdraft and DDA analysis fees in 2015. Fiduciary fees declined as a result of the Company’s decision to exit the wealth management market during the fourth quarter of 2014 through the sale of its wealth management business. Partially offsetting the foregoing reductions in non-interest income were increases in net gain on the sale of portfolio loans (up $198 thousand) and net gain on the sale of mortgage loans originated for sale (up $51 thousand).

36

Non-Interest Income

For the quarters ended March 31, 2015 and 2014

(dollars in thousands)

	Quarters ended March 31,				Over/ (under)
	2015		2014		2014
Service charges on deposit accounts	$	747	$	1,003		(25.5	)%
Other service charges, commissions and fees		593		679		(12.7	)
Fiduciary fees		-		279		(100.0	)
Net gain on sale of securities available for sale		26		-		N/M	(1)
Net gain on sale of portfolio loans		198		-		N/M	(1)
Net gain on sale of mortgage loans originated for sale		144		93		54.8
Net gain on sale of premises and equipment		-		642		(100.0	)
Income from bank owned life insurance		309		354		(12.7	)
Other operating income		74		42		76.2
Total non-interest income	$	2,091	$	3,092		(32.4	)%

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

The $201 thousand reduction in total operating expenses in the first quarter of 2015 versus 2014 was principally the result of a $255 thousand (2.9%) reduction in compensation and benefits expense and a $213 thousand (38.7%) reduction in consulting and professional fees. Excluding a $170 thousand expense credit recorded in the first quarter of 2014 related to branch closures, total operating expenses declined by $371 thousand or 2.8% in the first quarter of 2015 versus the comparable 2014 period.

The Company’s core operating efficiency ratio improved to 66.4% in the first quarter of 2015 from 72.5% a year ago. The core operating efficiency ratio is calculated by making certain adjustments to the operating efficiency ratio calculation. The core operating efficiency ratio is not required by U.S. GAAP or by applicable bank regulatory requirements, but is a metric used by management to evaluate core operating efficiency. Since there is no authoritative requirement to calculate this ratio, our ratio is not necessarily comparable to similar efficiency measures disclosed or used by other companies in the financial services industry. The core operating efficiency ratio is a non-GAAP financial measure and should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with U.S. GAAP. The calculation of the core operating efficiency ratio, the reconciliation of core operating expenses to U.S. GAAP total operating expenses, core non-interest income to U.S. GAAP total non-interest income and core FTE net interest income to FTE net interest income are provided elsewhere herein. (See also Non-GAAP Disclosure contained herein.)

Operating Expenses

For the quarters ended March 31, 2015 and 2014

(dollars in thousands)

	Quarters ended March 31,					Over/ (under)
	2015		2014			2014
Employee compensation and benefits	$	8,606	$	8,861			(2.9	)%
Occupancy expense		1,462		1,435			1.9
Equipment expense		385		449			(14.3	)
Consulting and professional services		338		551			(38.7	)
FDIC assessment		290		267			8.6
Data processing		570		573			(0.5	)
Branch consolidation costs (credits)		-		(170	)		(100.0	)
Other operating expenses		1,457		1,343			8.5
Total operating expenses	$	13,108	$	13,309			(1.5	)%

37

The Company recorded income tax expense of $1.2 million in the first quarter of 2015 resulting in an effective tax rate of 23.6% versus an income tax expense of $1.1 million and an effective tax rate of 23.0% in the comparable period a year ago.

Asset Quality - Non-accrual loans totaled $12.3 million or 0.89% of loans outstanding at March 31, 2015 versus $13.0 million or 0.96% of total loans outstanding at December 31, 2014 and $14.1 million or 1.24% of loans outstanding at March 31, 2014. The allowance for loan losses as a percentage of total non-accrual loans amounted to 157%, 148% and 126% at March 31, 2015, December 31, 2014 and March 31, 2014, respectively.

The Company had 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 $1.1 million or 0.08% of loans outstanding at March 31, 2015 as compared to $1.4 million or 0.10% of loans outstanding at December 31, 2014 and $3.8 million or 0.33% of loans outstanding at March 31, 2014. The Company held no OREO during any of the reported periods.

Total criticized and classified loans were $44 million at March 31, 2015 versus $40 million at December 31, 2014 and March 31, 2014. Criticized loans are those loans that are not classified but require some degree of heightened monitoring. Classified loans were $25 million at March 31, 2015 as compared to $30 million at December 31, 2014 and $33 million at March 31, 2014. The allowance for loan losses as a percentage of total classified loans was 77%, 64% and 53%, respectively, at the same dates.

At March 31, 2015, the Company had $19 million in TDRs, primarily consisting of commercial and industrial loans, commercial real estate loans and residential mortgages totaling $3 million, $10 million and $4 million, respectively. The Company had TDRs amounting to $20 million at December 31, 2014 and $16 million at March 31, 2014.

The Company recorded net loan charge-offs of $125 thousand in the first quarter of 2015 versus net loan recoveries of $150 thousand in the fourth quarter of 2014 and net loan recoveries of $224 thousand in the first quarter of 2014. As a percentage of average total loans outstanding, these net amounts represented, on an annualized basis, 0.04% for the first quarter of 2015, (0.05%) for the fourth quarter of 2014 and (0.08%) for the first quarter of 2014.

38

At March 31, 2015, the Company’s allowance for loan losses amounted to $19.3 million or 1.40% of period-end loans outstanding. The allowance as a percentage of loans outstanding was 1.42% and 1.57% at December 31, 2014 and March 31, 2014, respectively.

The $250 thousand provision for loan losses recorded during the first quarter of 2015 was due to the growth in the loan portfolio experienced during the past three months. The Company also recorded a provision for loan losses of $250 thousand in the first quarter of 2014.

For the three months ended March 31, 2015, the ending balance of the Company’s allowance for loan losses increased by $125 thousand when compared to December 31, 2014. During the first quarter of 2015, the Company increased its allowance for loan losses allocated to commercial and industrial (“C&I”), commercial real estate (“CRE”) and multifamily loans by $438 thousand, $575 thousand and $449 thousand, respectively.

The increase in the allowance for loan losses allocated to C&I loans was primarily due to an increase of 0.16% versus December 31, 2014, in the average combined historical loss and environmental factors rates on unimpaired pass rated C&I loans, partially offset by a decrease of $2 million in the balance of such unimpaired pass rated loans. The increases in the allowance for loan losses allocated to multifamily and CRE loans during the first three months of 2015 largely reflected increases of $13 million and $17 million, respectively, in the balances of unimpaired pass rated multifamily and CRE loans.

The loss factors rates incorporate a rolling twelve quarter look back period used in calculating historical losses for each loan segment. In an effort to more accurately represent the Company’s incurred and expected losses by individual loan segment, a twelve quarter period is used to improve the granularity of individual loan segment charge-off history and reduce the volatility associated with improperly weighting short-term trends in the calculation.

At March 31, 2015, the Company’s allowance for loan losses included an unallocated portion totaling $1.4 million. For the three months ended March 31, 2015, the ending balance of the Company’s unallocated portion of the allowance for loan losses decreased $925 thousand versus December 31, 2014. Loan portfolio growth was 2.0% during the first quarter of 2015, primarily in multifamily and CRE loans. Loan growth, including multifamily loans, is expected to continue throughout 2015. An unallocated portion of the reserve is considered a prudent option until these loans to new borrowers establish longer-term payment patterns.

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

39

ANALYSIS OF NON-PERFORMING ASSETS

AND THE ALLOWANCE FOR LOAN LOSSES

March 31, 2015 versus December 31, 2014 and March 31, 2014

(dollars in thousands)

NON-PERFORMING ASSETS BY TYPE:

	At
	3/31/2015		12/31/2014		3/31/2014
Non-accrual loans	$	12,292	$	12,981	$	14,059
Non-accrual loans held for sale		-		-		-
Loans 90 days or more past due and still accruing		-		-		-
OREO		-		-		-
Total non-performing assets	$	12,292	$	12,981	$	14,059
Gross loans outstanding	$	1,382,160	$	1,355,427	$	1,129,818
Total loans held for sale	$	2,836	$	26,495	$	190

ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES:

	Quarter Ended
	3/31/2015			12/31/2014			3/31/2014
Beginning balance	$	19,200		$	18,800		$	17,263
Provision		250			250			250
Charge-offs		(493	)		(22	)		(117	)
Recoveries		368			172			341
Ending balance	$	19,325		$	19,200		$	17,737

KEY  RATIOS:

	At
	3/31/2015			12/31/2014			3/31/2014
Allowance as a % of total loans (1)		1.40	%		1.42	%		1.57	%
Non-accrual loans as a % of total loans (1)		0.89	%		0.96	%		1.24	%
Non-performing assets as a % of total loans, loans held for sale and OREO		0.89	%		0.94	%		1.24	%
Allowance for loan losses as a % of non-accrual loans (1)		157	%		148	%		126	%
Allowance for loan losses as a % of non-accrual loans and loans 90 days or more past due and still accruing (1)		157	%		148	%		126	%

(1) Excludes loans held for sale.

ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company originates and invests in interest-earning assets and solicits interest-bearing deposit accounts. The Company’s operations are subject to market risk resulting from fluctuations in interest rates to the extent that there is a difference between the amounts of interest-earning assets and interest-bearing liabilities that are prepaid, withdrawn, mature, or repriced in any given period of time. The Company’s earnings or the net value of its portfolio will change under different interest rate scenarios. The principal objective of the Company’s asset/liability management program is to maximize net interest income within an acceptable range of overall risk, including both the effect of changes in interest rates and liquidity risk. The Company’s assessment of market risk at March 31, 2015 indicated there were no material changes in the quantitative and qualitative disclosures from those in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

40

ITEM 4. – CONTROLS AND PROCEDURES

Evaluation of Disclosure 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 (“Exchange Act”), as of the end of the period covered by this report.

Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that, as of March 31, 2015, the Company’s disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the Company’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. There have been no changes in the Company’s internal controls or in other factors that have materially affected, or are reasonably likely to materially affect, internal controls subsequent to the date the Company carried out its evaluation.

Changes in Internal Control Over Financial Reporting

There were no changes to the Company’s internal control over financial reporting as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act that occurred in the first quarter of 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, the Company’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that the Company’s management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

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, 2014, except as discussed below.

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

At March 31, 2015, $580 million, or 42% of the Company’s total gross loan portfolio, was comprised of commercial real estate (exclusive of multifamily and mixed use commercial loans). 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.

41

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

Not applicable.

ITEM 3. – DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. – MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. – OTHER INFORMATION

Not applicable.

ITEM 6. – EXHIBITS

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

42

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: April 30, 2015	/s/ Howard C. Bluver
	Howard C. Bluver
	President & Chief Executive Officer
	(principal executive officer)
Date: April 30, 2015	/s/ Brian K. Finneran
	Brian K. Finneran
	Executive Vice President & Chief Financial Officer
	(principal financial and accounting officer)

43

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

44

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: April 30, 2015

/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: April 30, 2015

/s/ Brian K. Finneran

Brian K. Finneran

Executive Vice President & Chief Financial Officer

(principal financial and accounting officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Howard C. Bluver, President & Chief Executive Officer of Suffolk Bancorp (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2015 (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: April 30, 2015

/s/ Howard C. Bluver

Howard C. Bluver

President & Chief Executive Officer

(principal executive officer)

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Brian K. Finneran,  Chief Financial Officer of Suffolk Bancorp (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2015 (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: April 30, 2015

/s/ Brian K. Finneran

Brian K. Finneran

Executive Vice President & Chief Financial Officer

(principal financial and accounting officer)

XML

LOANS, Summary of Impaired Loans (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	$ 17,984		$ 18,624
Impaired loans with an allowance recorded, Unpaid Principal Balance	4,501		4,474
Impaired loans, Unpaid Principal Balance, Total	22,485		23,098
Impaired loans with no allowance recorded, Recorded Investment	17,419		18,077
Impaired loans with an allowance recorded, Recorded Investment	4,366		4,338
Impaired Loans, Recorded Investment, Total	21,785		22,415
Impaired Loans, No Allowance Allocated	0		0
Impaired Loans, Allowance Allocated	1,028		1,005
Average recorded investment in impaired loans	22,215	25,102
Interest income recognized on impaired loans	137	261
Commercial and Industrial [Member]
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	3,723		4,833
Impaired loans with an allowance recorded, Unpaid Principal Balance	42		57
Impaired loans with no allowance recorded, Recorded Investment	3,723		4,833
Impaired loans with an allowance recorded, Recorded Investment	41		56
Impaired Loans, No Allowance Allocated	0		0
Impaired Loans, Allowance Allocated	10		16
Average recorded investment in impaired loans	4,551	7,567
Interest income recognized on impaired loans	33	107
Commercial Real Estate [Member]
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	10,721		10,632
Impaired loans with no allowance recorded, Recorded Investment	10,302		10,214
Impaired Loans, No Allowance Allocated	0		0
Average recorded investment in impaired loans	10,208	11,558
Interest income recognized on impaired loans	50	99
Residential Mortgages [Member]
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	1,919		1,645
Impaired loans with an allowance recorded, Unpaid Principal Balance	3,877		3,906
Impaired loans with no allowance recorded, Recorded Investment	1,773		1,516
Impaired loans with an allowance recorded, Recorded Investment	3,878		3,906
Impaired Loans, No Allowance Allocated	0		0
Impaired Loans, Allowance Allocated	771		809
Average recorded investment in impaired loans	5,411	5,036
Interest income recognized on impaired loans	38	36
Home Equity [Member]
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	1,407		1,377
Impaired loans with an allowance recorded, Unpaid Principal Balance	400		326
Impaired loans with no allowance recorded, Recorded Investment	1,407		1,377
Impaired loans with an allowance recorded, Recorded Investment	263		190
Impaired Loans, No Allowance Allocated	0		0
Impaired Loans, Allowance Allocated	159		92
Average recorded investment in impaired loans	1,662	771
Interest income recognized on impaired loans	13	17
Consumer [Member]
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	214		137
Impaired loans with an allowance recorded, Unpaid Principal Balance	182		185
Impaired loans with no allowance recorded, Recorded Investment	214		137
Impaired loans with an allowance recorded, Recorded Investment	184		186
Impaired Loans, No Allowance Allocated	0		0
Impaired Loans, Allowance Allocated	88		88
Average recorded investment in impaired loans	383	170
Interest income recognized on impaired loans	$ 3	$ 2

XML

FAIR VALUE, Reconciliations for Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3) (Details) (Liabilities Derivatives [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Liabilities Derivatives [Member]
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) [Rollforward]
Beginning balance	$ 752	$ 932
Net change	0	0
Ending balance	$ 752	$ 932

XML

INCOME TAXES (Details) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
INCOME TAXES [Abstract]
Income tax expense	$ 1,241,000	$ 1,111,000
Effective tax rate (in hundredths)	23.60%	23.00%
Unrecognized tax benefits	34,000	34,000	34,000
Unrecognized tax benefits accrued interest	0
Operating Loss Carryforwards [Line Items]
Valuation reserve	1,000,000
Operating loss carryforwards, expiration dates	Dec. 31, 2032
Income Tax Reconciliation, Change in Enacted Tax Rate		462,000
Income Tax Reconciliation, Nondeductible Expense, Share-based Compensation Cost		454,000
Federal [Member]
Operating Loss Carryforwards [Line Items]
Net operating loss carryforwards	0
New York State [Member]
Operating Loss Carryforwards [Line Items]
Net operating loss carryforwards	23,000,000
Corporate tax rate, effective (in hundredths)	7.10%
Corporate tax rate, future - 2016 (in hundredths)	6.50%
Asset qualifying threshold for tax modification	8,000,000,000
Maximum mortgage threshold for loans	$ 5,000,000

XML

BORROWINGS (Details) (USD $)	3 Months Ended	12 Months Ended
	Mar. 31, 2015	Dec. 31, 2014
Debt Instrument [Line Items]
Daily average outstanding	$ 124,111,000	$ 13,059,000
Total interest cost	108,000	48,000
Average interest rate paid (in hundredths)	0.35%	0.37%
Maximum amount outstanding at any month-end	155,000,000	130,000,000
Ending, balance	90,000,000	130,000,000
Weighted-average interest rate on balances outstanding (in hundredths)	0.34%	0.32%
Assets pledged as collateral to the Federal Home Loan Bank	567,000,000	505,000,000
Federal Home Loan Bank borrowings	90,000,000	130,000,000
Federal Home Loan Bank Borrowings [Member]
Debt Instrument [Line Items]
Daily average outstanding	124,111,000	13,051,000
Total interest cost	108,000	48,000
Average interest rate paid (in hundredths)	0.35%	0.37%
Maximum amount outstanding at any month-end	155,000,000	130,000,000
Ending, balance	90,000,000	130,000,000
Weighted-average interest rate on balances outstanding (in hundredths)	0.34%	0.32%
Federal Funds Purchased [Member]
Debt Instrument [Line Items]
Daily average outstanding	0	8,000
Total interest cost	0	0
Average interest rate paid (in hundredths)	0.00%	0.46%
Maximum amount outstanding at any month-end	0	0
Ending, balance	$ 0	$ 0
Weighted-average interest rate on balances outstanding (in hundredths)	0.00%	0.00%

XML

EMPLOYEE BENEFITS (Details) (USD $)	3 Months Ended		12 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014	Dec. 31, 2012
EMPLOYEE BENEFITS [Abstract]
Net periodic pension credit	$ (111)	$ (91)
Optional required contribution for pension plan			1,000,000
Minimum required contribution for the pension plan			0
Additional minimum required contribution for the pension plan				$ 0

XML

INVESTMENT SECURITIES, Amortized Cost, Maturities and Approximate Fair Value (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Amortized Cost [Abstract]
Due in one year or less	$ 28,100
Due from one to five years	143,494
Due from five to ten years	113,825
Amortized Cost	285,419	294,310
Fair Value [Abstract]
Due in one year or less	28,595
Due from one to five years	147,769
Due from five to ten years	115,193
Total securities available for sale	291,557	298,670
Amortized Cost [Abstract]
Due in one year or less	1,630
Due from one to five years	5,392
Due from five to ten years	32,073
Due after ten years	23,096
Total securities held to maturity	62,191
Total investment securities, Amortized Cost	347,610	356,580
Fair Value [Abstract]
Due in one year or less	1,644
Due from one to five years	5,792
Due from five to ten years	33,256
Due after ten years	24,722
Total securities held to maturity	65,414
Total investment securities, Fair Value	$ 356,971	$ 363,466

XML

LOANS (Tables)

3 Months Ended

Mar. 31, 2015

LOANS [Abstract]

Categorizes total loans

At March 31, 2015 and December 31, 2014, net loans disaggregated by class consisted of the following (in thousands):

	March 31, 2015			December 31, 2014
Commercial and industrial	$	178,812		$	177,813
Commercial real estate		579,873			560,524
Multifamily		322,229			309,666
Mixed use commercial		35,333			34,806
Real estate construction		24,608			26,206
Residential mortgages		184,977			187,828
Home equity		49,440			50,982
Consumer		6,888			7,602
Gross loans		1,382,160			1,355,427
Allowance for loan losses		(19,325	)		(19,200	)
Net loans at end of period	$	1,362,835		$	1,336,227

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

The following summarizes the activity in the allowance for loan losses disaggregated by class for the periods indicated (in thousands).

	Three Months Ended March 31, 2015												Three Months Ended March 31, 2014
	Balance at beginning of period		Charge-offs			Recoveries		Provision (credit) for loan losses			Balance at end of period		Balance at beginning of period		Charge-offs			Recoveries		(Credit) provision for loan losses			Balance at end of period
Commercial and industrial	$	1,560	$	(492	)	$	343	$	587		$	1,998	$	2,615	$	(115	)	$	293	$	(312	)	$	2,481
Commercial real estate		6,777		-			7		568			7,352		6,572		-			12		624			7,208
Multifamily		4,018		-			-		449			4,467		2,159		-			-		481			2,640
Mixed use commercial		261		-			-		12			273		54		-			-		33			87
Real estate construction		383		-			-		(23	)		360		88		-			-		129			217
Residential mortgages		3,027		-			11		(420	)		2,618		2,463		-			4		160			2,627
Home equity		709		-			2		17			728		745		-			27		(54	)		718
Consumer		166		(1	)		5		(15	)		155		241		(2	)		5		(58	)		186
Unallocated		2,299		-			-		(925	)		1,374		2,326		-			-		(753	)		1,573
Total	$	19,200	$	(493	)	$	368	$	250		$	19,325	$	17,263	$	(117	)	$	341	$	250		$	17,737

Summary of changes in the allowance for loan losses

At March 31, 2015 and December 31, 2014, the ending balance in the allowance for loan losses disaggregated by class and impairment methodology is as follows (in thousands). Also in the tables below are total loans at March 31, 2015 and December 31, 2014 disaggregated by class and impairment methodology (in thousands).

	Allowance for Loan Losses						Loan Balances
March 31, 2015	Individually evaluated for impairment		Collectively evaluated for impairment		Ending balance		Individually evaluated for impairment		Collectively evaluated for impairment		Ending balance
Commercial and industrial	$	10	$	1,988	$	1,998	$	3,764	$	175,048	$	178,812
Commercial real estate		-		7,352		7,352		10,302		569,571		579,873
Multifamily		-		4,467		4,467		-		322,229		322,229
Mixed use commercial		-		273		273		-		35,333		35,333
Real estate construction		-		360		360		-		24,608		24,608
Residential mortgages		771		1,847		2,618		5,651		179,326		184,977
Home equity		159		569		728		1,670		47,770		49,440
Consumer		88		67		155		398		6,490		6,888
Unallocated		-		1,374		1,374		-		-		-
Total	$	1,028	$	18,297	$	19,325	$	21,785	$	1,360,375	$	1,382,160

	Allowance for Loan Losses						Loan Balances
December 31, 2014	Individually evaluated for impairment		Collectively evaluated for impairment		Ending balance		Individually evaluated for impairment		Collectively evaluated for impairment		Ending balance
Commercial and industrial	$	16	$	1,544	$	1,560	$	4,889	$	172,924	$	177,813
Commercial real estate		-		6,777		6,777		10,214		550,310		560,524
Multifamily		-		4,018		4,018		-		309,666		309,666
Mixed use commercial		-		261		261		-		34,806		34,806
Real estate construction		-		383		383		-		26,206		26,206
Residential mortgages		809		2,218		3,027		5,422		182,406		187,828
Home equity		92		617		709		1,567		49,415		50,982
Consumer		88		78		166		323		7,279		7,602
Unallocated		-		2,299		2,299		-		-		-
Total	$	1,005	$	18,195	$	19,200	$	22,415	$	1,333,012	$	1,355,427

Summary of impaired loans

The following table presents the Company’s impaired loans disaggregated by class at March 31, 2015 and December 31, 2014 (in thousands).

	March 31, 2015						December 31, 2014
	Unpaid Principal Balance		Recorded Balance		Allowance Allocated		Unpaid Principal Balance		Recorded Balance		Allowance Allocated
With no allowance recorded:
Commercial and industrial	$	3,723	$	3,723	$	-	$	4,833	$	4,833	$	-
Commercial real estate		10,721		10,302		-		10,632		10,214		-
Residential mortgages		1,919		1,773		-		1,645		1,516		-
Home equity		1,407		1,407		-		1,377		1,377		-
Consumer		214		214		-		137		137		-
Subtotal		17,984		17,419		-		18,624		18,077		-
With an allowance recorded:
Commercial and industrial		42		41		10		57		56		16
Residential mortgages		3,877		3,878		771		3,906		3,906		809
Home equity		400		263		159		326		190		92
Consumer		182		184		88		185		186		88
Subtotal		4,501		4,366		1,028		4,474		4,338		1,005
Total	$	22,485	$	21,785	$	1,028	$	23,098	$	22,415	$	1,005

The following table presents the Company’s average recorded investment in impaired loans and the related interest income recognized disaggregated by class for the three months ended March 31, 2015 and 2014 (in thousands). No interest income was recognized on a cash basis on impaired loans for any of the periods presented. The interest income recognized on accruing impaired loans is shown in the following table.

	Three Months Ended March 31,
	2015				2014
	Average recorded investment in impaired loans		Interest income recognized on impaired loans		Average recorded investment in impaired loans		Interest income recognized on impaired loans
Commercial and industrial	$	4,551	$	33	$	7,567	$	107
Commercial real estate		10,208		50		11,558		99
Residential mortgages		5,411		38		5,036		36
Home equity		1,662		13		771		17
Consumer		383		3		170		2
Total	$	22,215	$	137	$	25,102	$	261

Troubled debt restructurings

Outstanding TDRs, disaggregated by class, at March 31, 2015 and December 31, 2014 are as follows (dollars in thousands):

	March 31, 2015				December 31, 2014
TDRs Outstanding	Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance
Commercial and industrial		30	$	2,721		31	$	3,683
Commercial real estate		8		10,057		8		10,179
Residential mortgages		21		4,478		19		4,314
Home equity		5		1,208		5		1,216
Consumer		7		277		7		281
Total		71	$	18,741		70	$	19,673

The following presents, disaggregated by class, information regarding TDRs executed during the three months ended March 31, 2015 and 2014 (dollars in thousands):

	Three Months Ended March 31,
	2015						2014
New TDRs	Number of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance		Number of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Commercial and industrial		1	$	12	$	12		3	$	377	$	377
Residential mortgages		2		194		199		-		-		-
Total		3	$	206	$	211		3	$	377	$	377

Presented below and disaggregated by class is information regarding loans modified as TDRs that had payment defaults of 90 days or more within twelve months of restructuring during the three months ended March 31, 2015 and 2014 (dollars in thousands).

	Three Months Ended March 31,
	2015				2014
Defaulted TDRs	Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance
Commercial real estate		-	$	-		2	$	1,596
Total		-	$	-		2	$	1,596

Summary of impaired and non-accrual loans

The following table presents a summary of non-performing assets for each period (in thousands):

	March 31, 2015		December 31, 2014
Non-accrual loans	$	12,292	$	12,981
Non-accrual loans held for sale		-		-
Loans 90 days past due and still accruing		-		-
OREO		-		-
Total non-performing assets	$	12,292	$	12,981
TDRs accruing interest	$	9,418	$	9,380
TDRs non-accruing	$	9,323	$	10,293

Summarizes non-accrual loans by loan class

At March 31, 2015 and December 31, 2014, non-accrual loans disaggregated by class were as follows (dollars in thousands):

	March 31, 2015										December 31, 2014
	Non-accrual loans		% of Total			Total Loans		% of Total Loans			Non-accrual loans		% of Total			Total Loans		% of Total Loans
Commercial and industrial	$	3,035		24.7	%	$	178,812		0.2	%	$	4,060		31.3	%	$	177,813		0.3	%
Commercial real estate		6,647		54.1			579,873		0.5			6,556		50.5			560,524		0.5
Multifamily		-		-			322,229		-			-		-			309,666		-
Mixed use commercial		-		-			35,333		-			-		-			34,806		-
Real estate construction		-		-			24,608		-			-		-			26,206		-
Residential mortgages		2,074		16.9			184,977		0.2			2,020		15.6			187,828		0.1
Home equity		414		3.3			49,440		-			303		2.3			50,982		0.1
Consumer		122		1.0			6,888		-			42		0.3			7,602		-
Total	$	12,292		100.0	%	$	1,382,160		0.9	%	$	12,981		100.0	%	$	1,355,427		1.0	%

Summary of current and past due loans

At March 31, 2015 and December 31, 2014, past due loans disaggregated by class were as follows (in thousands).

	Past Due
March 31, 2015	30 - 59 days			60 - 89 days			90 days and over			Total			Current			Total
Commercial and industrial	$	8		$	379		$	3,035		$	3,422		$	175,390		$	178,812
Commercial real estate		-			-			6,647			6,647			573,226			579,873
Multifamily		-			-			-			-			322,229			322,229
Mixed use commercial		-			-			-			-			35,333			35,333
Real estate construction		-			-			-			-			24,608			24,608
Residential mortgages		505			-			2,074			2,579			182,398			184,977
Home equity		199			-			414			613			48,827			49,440
Consumer		10			-			122			132			6,756			6,888
Total	$	722		$	379		$	12,292		$	13,393		$	1,368,767		$	1,382,160
% of Total Loans		0.1	%		0.0	%		0.9	%		1.0	%		99.0	%		100.0	%

	Past Due
December 31, 2014	30 - 59 days			60 - 89 days			90 days and over			Total			Current			Total
Commercial and industrial	$	52		$	241		$	4,060		$	4,353		$	173,460		$	177,813
Commercial real estate		-			-			6,556			6,556			553,968			560,524
Multifamily		-			-			-			-			309,666			309,666
Mixed use commercial		-			-			-			-			34,806			34,806
Real estate construction		-			-			-			-			26,206			26,206
Residential mortgages		822			-			2,020			2,842			184,986			187,828
Home equity		-			112			303			415			50,567			50,982
Consumer		59			77			42			178			7,424			7,602
Total	$	933		$	430		$	12,981		$	14,344		$	1,341,083		$	1,355,427
% of Total Loans		0.1	%		0.0	%		1.0	%		1.1	%		98.9	%		100.0	%

Credit risk profile by internally assigned grade

The following presents the Company’s loan portfolio credit risk profile by internally assigned grade disaggregated by class of loan at March 31, 2015 and December 31, 2014 (in thousands).

	March 31, 2015												December 31, 2014
	Grade												Grade
	Pass			Special mention			Substandard			Total			Pass			Special mention			Substandard			Total
Commercial and industrial	$	165,527		$	3,543		$	9,742		$	178,812		$	167,922		$	1,225		$	8,666		$	177,813
Commercial real estate		553,861			15,395			10,617			579,873			536,536			9,182			14,806			560,524
Multifamily		322,229			-			-			322,229			309,666			-			-			309,666
Mixed use commercial		35,313			-			20			35,333			34,806			-			-			34,806
Real estate construction		24,608			-			-			24,608			26,206			-			-			26,206
Residential mortgages		181,809			-			3,168			184,977			183,263			-			4,565			187,828
Home equity		48,021			-			1,419			49,440			49,569			-			1,413			50,982
Consumer		6,766			-			122			6,888			7,279			-			323			7,602
Total	$	1,338,134		$	18,938		$	25,088		$	1,382,160		$	1,315,247		$	10,407		$	29,773		$	1,355,427
% of Total		96.8	%		1.4	%		1.8	%		100.0	%		97.0	%		0.8	%		2.2	%		100.0	%

XML

FAIR VALUE, Balance Sheets Grouping (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015		Dec. 31, 2014
Financial Assets [Abstract]
Interest-bearing time deposits in other banks	$ 10,000		$ 10,000
Investment securities held to maturity	65,414		64,796
Investment securities available for sale	291,557		298,670
Financial Liabilities [Abstract]
Borrowings	90,000		130,000
Percentage of derivative in net sale proceeds (in hundredths)	10.00%
Carrying Amount [Member]
Financial Assets [Abstract]
Federal Reserve Bank, Federal Home Loan Bank and other stock	6,800		8,600
Carrying Amount [Member] | Level 1 [Member]
Financial Assets [Abstract]
Cash and due from banks	59,024		54,516
Carrying Amount [Member] | Level 2 [Member]
Financial Assets [Abstract]
Federal funds sold	0		1,000
Interest-bearing time deposits in other banks	10,000		10,000
Investment securities held to maturity	62,191		62,270
Investment securities available for sale	291,557		298,670
Loans held for sale	2,836		26,495
Accrued interest and loan fees receivable	6,482		5,676
Financial Liabilities [Abstract]
Non maturity deposits	1,368,484		1,337,301
Time deposits	223,188		218,759
Borrowings	90,000		130,000
Accrued interest payable	131		136
Carrying Amount [Member] | Level 3 [Member]
Financial Liabilities [Abstract]
Derivatives	752		752
Carrying Amount [Member] | Level 2/3 [Member]
Financial Assets [Abstract]
Loans, net of allowance	1,362,835	[1]	1,336,227	[1]
Fair Value [Member] | Level 1 [Member]
Financial Assets [Abstract]
Cash and due from banks	59,024		54,516
Fair Value [Member] | Level 2 [Member]
Financial Assets [Abstract]
Federal funds sold	0		1,000
Interest-bearing time deposits in other banks	10,009		10,017
Investment securities held to maturity	65,414		64,796
Investment securities available for sale	291,557		298,670
Loans held for sale	2,836		26,495
Accrued interest and loan fees receivable	6,482		5,676
Financial Liabilities [Abstract]
Non maturity deposits	1,368,484		1,337,301
Time deposits	223,570		219,089
Borrowings	90,003		130,004
Accrued interest payable	131		136
Fair Value [Member] | Level 3 [Member]
Financial Liabilities [Abstract]
Derivatives	752		752
Fair Value [Member] | Level 2/3 [Member]
Financial Assets [Abstract]
Loans, net of allowance	$ 1,364,305	[1]	$ 1,329,041	[1]

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

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LOANS, Loans and Allowance for Loan Losses by Risk Rating (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	$ 12,292		$ 12,981
Percentage of Total (in hundredths)	100.00%		100.00%
Total Loans	1,382,160		1,355,427
Percentage of Total Loans (in hundredths)	0.90%		1.00%
Additional interest income for the non-accrual loans outstanding at the end of the reported periods	180	494
Commercial and Industrial [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	3,035		4,060
Percentage of Total (in hundredths)	24.70%		31.30%
Total Loans	178,812		177,813
Percentage of Total Loans (in hundredths)	0.20%		0.30%
Commercial Real Estate [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	6,647		6,556
Percentage of Total (in hundredths)	54.10%		50.50%
Total Loans	579,873		560,524
Percentage of Total Loans (in hundredths)	0.50%		0.50%
Multifamily [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	0		0
Percentage of Total (in hundredths)	0.00%		0.00%
Total Loans	322,229		309,666
Percentage of Total Loans (in hundredths)	0.00%		0.00%
Mixed Use Commercial [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	0		0
Percentage of Total (in hundredths)	0.00%		0.00%
Total Loans	35,333		34,806
Percentage of Total Loans (in hundredths)	0.00%		0.00%
Real Estate Construction [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	0		0
Percentage of Total (in hundredths)	0.00%		0.00%
Total Loans	24,608		26,206
Percentage of Total Loans (in hundredths)	0.00%		0.00%
Residential Mortgages [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	2,074		2,020
Percentage of Total (in hundredths)	16.90%		15.60%
Total Loans	184,977		187,828
Percentage of Total Loans (in hundredths)	0.20%		0.10%
Home Equity [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	414		303
Percentage of Total (in hundredths)	3.30%		2.30%
Total Loans	49,440		50,982
Percentage of Total Loans (in hundredths)	0.00%		0.10%
Consumer [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	122		42
Percentage of Total (in hundredths)	1.00%		0.30%
Total Loans	$ 6,888		$ 7,602
Percentage of Total Loans (in hundredths)	0.00%		0.00%

XML

LOANS, Analysis of Changes in the Allowances for Loan Losses (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Allowance for loan losses [Abstract]
Balance, Beginning of Period	$ 19,200	$ 17,263
Charge-offs	(493)	(117)
Recoveries	368	341
Provision (credit) for loan losses	250	250
Balance, End of Period	19,325	17,737
Number of months of performance trouble debt restructuring returns to accrual status	6 months
Commercial and Industrial [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	1,560	2,615
Charge-offs	(492)	(115)
Recoveries	343	293
Provision (credit) for loan losses	587	(312)
Balance, End of Period	1,998	2,481
Commercial Real Estate [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	6,777	6,572
Charge-offs	0	0
Recoveries	7	12
Provision (credit) for loan losses	568	624
Balance, End of Period	7,352	7,208
Multifamily [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	4,018	2,159
Charge-offs	0	0
Recoveries	0	0
Provision (credit) for loan losses	449	481
Balance, End of Period	4,467	2,640
Mixed Use Commercial [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	261	54
Charge-offs	0	0
Recoveries	0	0
Provision (credit) for loan losses	12	33
Balance, End of Period	273	87
Real Estate Construction [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	383	88
Charge-offs	0	0
Recoveries	0	0
Provision (credit) for loan losses	(23)	129
Balance, End of Period	360	217
Residential Mortgages [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	3,027	2,463
Charge-offs	0	0
Recoveries	11	4
Provision (credit) for loan losses	(420)	160
Balance, End of Period	2,618	2,627
Home Equity [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	709	745
Charge-offs	0	0
Recoveries	2	27
Provision (credit) for loan losses	17	(54)
Balance, End of Period	728	718
Consumer [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	166	241
Charge-offs	(1)	(2)
Recoveries	5	5
Provision (credit) for loan losses	(15)	(58)
Balance, End of Period	155	186
Unallocated [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	2,299	2,326
Charge-offs	0	0
Recoveries	0	0
Provision (credit) for loan losses	(925)	(753)
Balance, End of Period	$ 1,374	$ 1,573

XML

FAIR VALUE, Non-recurring Basis, Quantitative Information (Details) (Level 3 [Member], USD $) In Thousands, unless otherwise specified	Mar. 31, 2015		Dec. 31, 2014
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Total	$ 3,338		$ 3,333
Third Party Appraisal and or Internal Evaluation [Member] | Commercial and Industrial [Member]
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Total	31		40
Third Party Appraisal and or Internal Evaluation [Member] | Commercial and Industrial [Member] | Minimum [Member]
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Discounts to appraisals for market conditions and selling costs (in hundredths)	5.60%	[1]
Third Party Appraisal and or Internal Evaluation [Member] | Commercial and Industrial [Member] | Maximum [Member]
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Discounts to appraisals for market conditions and selling costs (in hundredths)	50.00%	[1]
Third Party Appraisal [Member] | Residential Mortgages [Member]
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Total	3,107		3,097
Discounts to appraisals for market conditions and selling costs (in hundredths)	25.00%
Third Party Appraisal [Member] | Home Equity [Member]
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Total	104		98
Discounts to appraisals for market conditions and selling costs (in hundredths)	25.00%
Third Party Appraisal [Member] | Consumer [Member]
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Total	$ 96		$ 98
Discounts to appraisals for market conditions and selling costs (in hundredths)	25.00%

[1] The Company also makes adjustments to the appraised value based upon evaluation of corporate assets, such as inventory and accounts receivable, and various other information, such as market conditions and other factors. Higher discounts may be applied to certain assets, such as inventory and accounts receivable.

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STOCK-BASED COMPENSATION (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		12 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock, new shares (in shares)	1,000	0
Number of Shares [Roll Forward]
Outstanding at beginning (in shares)	251,100
Granted (in shares)	0
Exercised (in shares)	(1,000)
Forfeited or expired (in shares)	(10,000)
Outstanding at ending (in shares)	240,100
Weighted Average Exercise Price [Roll Forward]
Outstanding at beginning (in dollars per share)	$ 16.33
Granted (in dollars per share)	$ 0
Exercised (in dollars per share)	$ 18.18
Forfeited or expired (in dollars per share)	$ 22.84
Outstanding at ending (in dollars per share)	$ 16.06
Summary of options outstanding and exercisable [Abstract]
Weighted-Average Remaining Contractual Life	7 years
Total Shares Outstanding (in shares)	240,100
Total Weighted-Average Exercise Price (in dollars per share)	$ 16.06
Total Shares Exercisable (in shares)	147,772
Total Weighted-Average Remaining Contractual Life	6 years 7 months 6 days
Total Weighted-Average Exercise Price (in dollars per share)	$ 16.59
Compensation expense	$ 222	$ 165
$10.00 - $14.00 [Member]
Summary of options outstanding and exercisable [Abstract]
Exercise price range, Lower limit (in dollars per share)	$ 10.00
Exercise price range, Upper limit (in dollars per share)	$ 14.00
Shares Outstanding (in shares)	120,000
Weighted-Average Remaining Contractual Life	6 years 10 months 24 days
Weighted-Average Exercise Price (in dollars per share)	$ 11.97
Shares Exercisable (in shares)	83,334
Weighted-Average Remaining Contractual Life	6 years 10 months 24 days
Weighted-Average Exercise Price (in dollars per share)	$ 12.45
$14.01 - $20.00 [Member]
Summary of options outstanding and exercisable [Abstract]
Exercise price range, Lower limit (in dollars per share)	$ 14.01
Exercise price range, Upper limit (in dollars per share)	$ 20.00
Shares Outstanding (in shares)	98,100
Weighted-Average Remaining Contractual Life	8 years 3 months 18 days
Weighted-Average Exercise Price (in dollars per share)	$ 17.47
Shares Exercisable (in shares)	42,438
Weighted-Average Remaining Contractual Life	8 years 2 months 12 days
Weighted-Average Exercise Price (in dollars per share)	$ 16.73
$20.01 - $30.00 [Member]
Summary of options outstanding and exercisable [Abstract]
Exercise price range, Lower limit (in dollars per share)	$ 20.01
Exercise price range, Upper limit (in dollars per share)	$ 30.00
Shares Outstanding (in shares)	5,000
Weighted-Average Remaining Contractual Life	3 years 9 months 18 days
Weighted-Average Exercise Price (in dollars per share)	$ 28.30
Shares Exercisable (in shares)	5,000
Weighted-Average Remaining Contractual Life	3 years 9 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]
Exercise price range, Lower limit (in dollars per share)	$ 30.01
Exercise price range, Upper limit (in dollars per share)	$ 40.00
Shares Outstanding (in shares)	17,000
Weighted-Average Remaining Contractual Life	1 year 9 months 18 days
Weighted-Average Exercise Price (in dollars per share)	$ 33.12
Shares Exercisable (in shares)	17,000
Weighted-Average Remaining Contractual Life	1 year 9 months 18 days
Weighted-Average Exercise Price (in dollars per share)	$ 33.12
Stock Appreciation Rights (SARs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Intrinsic value of SAR's (in dollars per share)	$ 0
Number of Shares [Roll Forward]
Outstanding at ending (in shares)	6,000
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options exercise period	3 years
Vesting rate	0.33333
Number of Shares [Roll Forward]
Outstanding at beginning (in shares)	72,350
Granted (in shares)	51,562
Vested (in shares)	0
Forfeited or expired (in shares)	(4,975)
Outstanding at ending (in shares)	118,937
Weighted Average Grant-Date Fair Value [Roll Forward]
Outstanding at beginning (in dollars per shares)	$ 22.51
Granted (in dollars per share)	$ 22.76
Vested (in dollars per share)	$ 0
Forfeited or expired (in dollars per share)	$ 22.52
Outstanding at ending (in dollars per share)	$ 22.62
Remaining unrecognized compensation cost	2,100
Remaining unrecognized compensation cost remaining vesting period	2 years 4 months 24 days
Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options exercise period			3 years	3 years	3 years
Vesting rate			0.33333	0.33333	0.33333
Total intrinsic value of options exercised	6
Total cash received from option exercises	19
Maximum [Member] | Employee Stock Option [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 available for possible issuance (in shares)	166,561
Weighted Average Grant-Date Fair Value [Roll Forward]
Remaining unrecognized compensation cost	$ 211
Remaining unrecognized compensation cost remaining vesting period	1 year 6 months
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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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) [Abstract]
NET INCOME	$ 4,009	$ 3,720
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Provision for loan losses	250	250
Depreciation and Amortization	565	604
Stock-based compensation	222	165
Net amortization of premiums	297	293
Originations of mortgage loans for sale	(9,314)	(4,061)
Proceeds from sale of mortgage loans originated for sale	9,281	4,139
Gain on sale of mortgage loans originated for sale	(144)	(93)
Gain on sale of portfolio loans	(198)	0
Increase in other intangibles	(52)	(16)
Deferred tax expense (benefit)	99	(78)
Increase in accrued interest and loan fees receivable	(806)	(881)
Decrease in other assets	708	372
Adjustment to unfunded pension liability	(111)	(91)
Decrease in other liabilities	(3,626)	(4,230)
Income from bank owned life insurance	(309)	(354)
Gain on sale of premises and equipment	0	(642)
Net gain on sale of securities available for sale	(26)	0
Net cash provided by (used in) operating activities	845	(903)
CASH FLOWS FROM INVESTING ACTIVITIES
Principal payments on investment securities	1,413	3,854
Proceeds from sale of investment securities - available for sale	531	0
Maturities of investment securities - available for sale	6,705	6,040
Maturities of investment securities - held to maturity	117	315
Purchases of investment securities - held to maturity	0	(2,834)
Decrease in Federal Reserve Bank, Federal Home Loan Bank and other stock	1,800	0
Proceeds from sale of portfolio loans	23,986	0
Loan originations - net	(26,810)	(60,746)
Proceeds from sale of premises and equipment	0	900
Increase in bank owned life insurance	0	(5,000)
Purchases of premises and equipment - net	(143)	(124)
Net cash provided by (used in) investing activities	7,599	(57,595)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts	35,612	13,373
Net increase in borrowings	(40,000)	0
Proceeds from stock options exercised	19	0
Cash dividends paid on common stock	(700)	0
Proceeds from shares issued under the dividend reinvestment plan	161	0
Decrease in capital lease payable	(28)	(24)
Net cash (used in) provided by financing activities	(4,936)	13,349
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	3,508	(45,149)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	55,516	132,352
CASH AND CASH EQUIVALENTS, END OF PERIOD	59,024	87,203
SUPPLEMENTAL DATA:
Interest paid	681	637
Income taxes paid	340	329
Investment securities transferred from available for sale to held to maturity	$ 0	$ 31,286

XML

LOANS, Loans Current and Past Due by Aging Categories (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Summary of current and past due loans [Abstract]
30-59 days past due	$ 722	$ 933
60-89 days past due	379	430
90 days and over past due	12,292	12,981
Total past due	13,393	14,344
Current	1,368,767	1,341,083
Total loans	1,382,160	1,355,427
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due (in hundredths)	0.10%	0.10%
Financing Receivable, Recorded Investment, 60 to 89 Days Past Due (in hundredths)	0.00%	0.00%
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due (in hundredths)	0.90%	1.00%
Financing Receivable, Recorded Investment, Past Due (in hundredths)	1.00%	1.10%
Financing Receivable, Recorded Investment, Current (in hundredths)	99.00%	98.90%
Total (in hundredths)	100.00%	100.00%
Commercial and Industrial [Member]
Summary of current and past due loans [Abstract]
30-59 days past due	8	52
60-89 days past due	379	241
90 days and over past due	3,035	4,060
Total past due	3,422	4,353
Current	175,390	173,460
Total loans	178,812	177,813
Commercial Real Estate [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	6,647	6,556
Total past due	6,647	6,556
Current	573,226	553,968
Total loans	579,873	560,524
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	322,229	309,666
Total loans	322,229	309,666
Mixed Use Commercial [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	35,333	34,806
Total loans	35,333	34,806
Real Estate Construction [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	24,608	26,206
Total loans	24,608	26,206
Residential Mortgages [Member]
Summary of current and past due loans [Abstract]
30-59 days past due	505	822
60-89 days past due	0	0
90 days and over past due	2,074	2,020
Total past due	2,579	2,842
Current	182,398	184,986
Total loans	184,977	187,828
Home Equity [Member]
Summary of current and past due loans [Abstract]
30-59 days past due	199	0
60-89 days past due	0	112
90 days and over past due	414	303
Total past due	613	415
Current	48,827	50,567
Total loans	49,440	50,982
Consumer [Member]
Summary of current and past due loans [Abstract]
30-59 days past due	10	59
60-89 days past due	0	77
90 days and over past due	122	42
Total past due	132	178
Current	6,756	7,424
Total loans	$ 6,888	$ 7,602

XML

BORROWINGS (Tables)

3 Months Ended

Mar. 31, 2015

BORROWINGS [Abstract]

Schedule of components of short- and long-term interest-bearing liabilities

The following summarizes borrowed funds at March 31, 2015 and December 31, 2014 (dollars in thousands):

March 31, 2015	Federal Home Loan Bank Borrowings			Federal Funds Purchased			Total
Daily average outstanding	$	124,111		$	-		$	124,111
Total interest cost		108			-			108
Average interest rate paid		0.35	%		-	%		0.35	%
Maximum amount outstanding at any month-end	$	155,000		$	-		$	155,000
March 31 balance		90,000			-			90,000
Weighted-average interest rate on balances outstanding		0.34	%		-	%		0.34	%

December 31, 2014	Federal Home Loan Bank Borrowings			Federal Funds Purchased			Total
Daily average outstanding	$	13,051		$	8		$	13,059
Total interest cost		48			-			48
Average interest rate paid		0.37	%		0.46	%		0.37	%
Maximum amount outstanding at any month-end	$	130,000		$	-		$	130,000
December 31 balance		130,000			-			130,000
Weighted-average interest rate on balances outstanding		0.32	%		-	%		0.32	%

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FAIR VALUE (Tables)

3 Months Ended

Mar. 31, 2015

FAIR VALUE [Abstract]

Carrying amounts and fair values of financial instruments

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

	Level in	March 31, 2015				December 31, 2014
	Fair Value Hierarchy	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets:
Cash and due from banks	Level 1	$	59,024	$	59,024	$	54,516	$	54,516
Federal funds sold	Level 2		-		-		1,000		1,000
Interest-bearing time deposits in other banks	Level 2		10,000		10,009		10,000		10,017
Federal Reserve Bank, Federal Home Loan Bank and other stock	N/A		6,800		N/A		8,600		N/A
Investment securities held to maturity	Level 2		62,191		65,414		62,270		64,796
Investment securities available for sale	Level 2		291,557		291,557		298,670		298,670
Loans held for sale	Level 2		2,836		2,836		26,495		26,495
Loans, net of allowance	Level 2, 3 (1)		1,362,835		1,364,305		1,336,227		1,329,041
Accrued interest and loan fees receivable	Level 2		6,482		6,482		5,676		5,676
Financial Liabilities:
Non-maturity deposits	Level 2		1,368,484		1,368,484		1,337,301		1,337,301
Time deposits	Level 2		223,188		223,570		218,759		219,089
Borrowings	Level 2		90,000		90,003		130,000		130,004
Accrued interest payable	Level 2		131		131		136		136
Derivatives	Level 3		752		752		752		752

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

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:	March 31, 2015		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Impaired loans	$	3,338	$	3,338
Total	$	3,338	$	3,338

Assets:	December 31, 2014		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Impaired loans	$	3,333	$	3,333
Total	$	3,333	$	3,333

Fair Value Inputs, Quantitative information

The following presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis (dollars in thousands):

	Fair Value at
Assets:	March 31, 2015		December 31, 2014		Valuation Technique	Unobservable Inputs	Discount
Impaired loans:
Commercial and industrial	$	31	$	40	Third party appraisal and/or internal evaluation	Discount to appraised value (1); estimated selling costs	5.6% to 50%
Residential mortgages		3,107		3,097	Third party appraisal	Discount to appraised value	25%
Home equity		104		98	Third party appraisal	Discount to appraised value	25%
Consumer		96		98	Third party appraisal	Discount to appraised value	25%
Total	$	3,338	$	3,333

(1) The Company also makes adjustments to the appraised value based upon evaluation of corporate assets, such as inventory and accounts receivable, and various other information, such as market conditions and other factors. Higher discounts may be applied to certain assets, such as inventory and accounts receivable.

Valuation of financial instruments measured at fair value on recurring basis

The following presents fair value measurements on a recurring basis at March 31, 2015 and December 31, 2014 (in thousands):

			Fair Value Measurements Using
Assets:	March 31, 2015		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government agency securities	$	38,709	$	38,709	$	-
Obligations of states and political subdivisions		133,924		133,924		-
Collateralized mortgage obligations		21,391		21,391		-
Mortgage-backed securities		91,084		91,084		-
Corporate bonds		6,449		6,449		-
Total	$	291,557	$	291,557	$	-
Liabilities:
Derivatives		752	$	-	$	752
Total	$	752	$	-	$	752

			Fair Value Measurements Using
Assets:	December 31, 2014		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government agency securities	$	41,577	$	41,577	$	-
Obligations of states and political subdivisions		137,769		137,769		-
Collateralized mortgage obligations		21,997		21,997		-
Mortgage-backed securities		90,919		90,919		-
Corporate bonds		6,408		6,408		-
Total	$	298,670	$	298,670	$	-
Liabilities:
Derivatives		752	$	-	$	752
Total	$	752	$	-	$	752

Changes in Level 3 assets and liabilities measured at fair value on a recurring basis

Reconciliations for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) follow (in thousands).

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Three Months Ended March 31,
	2015		2014
	Liabilities Derivatives		Liabilities Derivatives
Balance, January 1	$	752	$	932
Net change		-		-
Balance, March 31	$	752	$	932

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LOANS, Loans by Internal Assigned Grade for Credit Risk (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Credit risk profile by internally assigned grade [Abstract]
Total	$ 1,382,160	$ 1,355,427
Total (in hundredths)	100.00%	100.00%
Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	1,338,134	1,315,247
Total (in hundredths)	96.80%	97.00%
Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	18,938	10,407
Total (in hundredths)	1.40%	0.80%
Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	25,088	29,773
Total (in hundredths)	1.80%	2.20%
Commercial and Industrial [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	178,812	177,813
Commercial and Industrial [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	165,527	167,922
Commercial and Industrial [Member] | Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	3,543	1,225
Commercial and Industrial [Member] | Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	9,742	8,666
Commercial Real Estate [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	579,873	560,524
Commercial Real Estate [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	553,861	536,536
Commercial Real Estate [Member] | Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	15,395	9,182
Commercial Real Estate [Member] | Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	10,617	14,806
Multifamily [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	322,229	309,666
Multifamily [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	322,229	309,666
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
Mixed Use Commercial [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	35,333	34,806
Mixed Use Commercial [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	35,313	34,806
Mixed Use Commercial [Member] | Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	0	0
Mixed Use Commercial [Member] | Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	20	0
Real Estate Construction [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	24,608	26,206
Real Estate Construction [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	24,608	26,206
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	0
Residential Mortgages [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	184,977	187,828
Residential Mortgages [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	181,809	183,263
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	3,168	4,565
Home Equity [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	49,440	50,982
Home Equity [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	48,021	49,569
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	1,419	1,413
Consumer [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	6,888	7,602
Consumer [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	6,766	7,279
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	$ 122	$ 323

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FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2015 Corporation	Mar. 31, 2014
Summary of Significant Accounting Policies [Abstract]
Ownership percentage (in hundredths)	100.00%
Number of corporation used to acquire foreclosed real estate	2
Weighted Average Number of Shares Outstanding Reconciliation [Abstract]
Weighted average common shares outstanding (in shares)	11,602,924	11,573,014
Weighted average unvested restricted shares (in shares)	91,503	0
Weighted average shares for basic earnings per share	11,694,427	11,573,014
Additional diluted shares:
Stock options (in shares)	68,672	58,448
Weighted average shares for diluted earnings per share (in shares)	11,763,099	11,631,462
Loans and Loan Interest Income Recognition [Abstract]
Maximum period for accrued interest for all class of loans	90 days
Allowance for Loan Losses [Abstract]
Threshold for non-accrual loans to be evaluated individually for impairment	$ 250

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ACCUMULATED OTHER COMPREHENSIVE INCOME ("AOCI") (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Accumulated Other Comprehensive Income [Roll Forward]
Beginning balance	$ (6,843)	$ (7,289)
Other comprehensive income (loss) before reclassifications	1,091	3,067
Amounts reclassified from AOCI	25	21
Net other comprehensive income (loss)	1,116	3,088
Ending balance	(5,727)	(4,201)
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Net gain on sale of securities available for sale	26	0
Interest income - U.S. Government agency obligations	(541)	(628)
Income tax expense	1,241	1,111
Net income	(4,009)	(3,720)
Reclassification Out of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Net gain on sale of securities available for sale	26	0
Interest income - U.S. Government agency obligations	(68)	(33)
Income tax expense	17	12
Net income	(25)	(21)
Unrealized Gains and Losses on Available for Sale Securities [Member]
Accumulated Other Comprehensive Income [Roll Forward]
Beginning balance	2,637	(4,095)
Other comprehensive income (loss) before reclassifications	1,091	4,700
Amounts reclassified from AOCI	(16)	0
Net other comprehensive income (loss)	1,075	4,700
Ending balance	3,712	605
Unrealized Losses on Securities Transferred from Available for Sale to Held to Maturity [Member]
Accumulated Other Comprehensive Income [Roll Forward]
Beginning balance	(1,805)	0
Other comprehensive income (loss) before reclassifications	0	(1,633)
Amounts reclassified from AOCI	41	21
Net other comprehensive income (loss)	41	(1,612)
Ending balance	(1,764)	(1,612)
Pension and Post-Retirement Plan Items [Member]
Accumulated Other Comprehensive Income [Roll Forward]
Beginning balance	(7,675)	(3,194)
Other comprehensive income (loss) before reclassifications	0	0
Amounts reclassified from AOCI	0	0
Net other comprehensive income (loss)	0	0
Ending balance	$ (7,675)	$ (3,194)

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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (Parenthetical) (USD $)	3 Months Ended
	Mar. 31, 2015
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) [Abstract]
Cash dividend on common stock (in dollars per share)	$ 0.06
Dividend reinvestment (in shares)	7,295
Stock options exercised (in shares)	(1,000)
Stock-based compensation (in shares)	46,587

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INVESTMENT SECURITIES, Amortized Cost, Estimated Values and Gross Unrealized Gains and Losses (Details) (USD $)	3 Months Ended		12 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
INVESTMENT SECURITIES [Abstract]
Investment securities transferred from available for sale to held to maturity, fair value			$ 48,000,000
Investment securities transferred from available for sale to held to maturity, unrealized gain (loss)	0	31,286,000	3,200,000
Available for sale [Abstract]
Amortized Cost	285,419,000		294,310,000
Gross Unrealized Gains	7,295,000		7,070,000
Gross Unrealized Losses	(1,157,000)		(2,710,000)
Investment securities available for sale	291,557,000		298,670,000
Held to maturity [Abstract]
Amortized Cost	62,191,000		62,270,000
Gross Unrealized Gains	3,223,000		2,526,000
Gross Unrealized Losses	0		0
Fair Value	65,414,000		64,796,000
Total investment securities [Abstract]
Total investment securities, Amortized Cost	347,610,000		356,580,000
Total Gross Unrealized Gains	10,518,000		9,596,000
Total Gross Unrealized Losses	(1,157,000)		(2,710,000)
Total investment securities, Fair Value	356,971,000		363,466,000
Investment securities pledged	246,000,000		245,000,000
U.S. Government Agency Securities [Member]
Held to maturity [Abstract]
Amortized Cost	48,433,000		48,365,000
Gross Unrealized Gains	2,431,000		1,717,000
Gross Unrealized Losses	0		0
Fair Value	50,864,000		50,082,000
Obligations of States and Political Subdivisions [Member]
Held to maturity [Abstract]
Amortized Cost	13,758,000		13,905,000
Gross Unrealized Gains	792,000		809,000
Gross Unrealized Losses	0		0
Fair Value	14,550,000		14,714,000
U.S. Government Agency Securities [Member]
Available for sale [Abstract]
Amortized Cost	38,974,000		42,474,000
Gross Unrealized Gains	8,000		0
Gross Unrealized Losses	(273,000)		(897,000)
Investment securities available for sale	38,709,000		41,577,000
Obligations of States and Political Subdivisions [Member]
Available for sale [Abstract]
Amortized Cost	127,440,000		131,300,000
Gross Unrealized Gains	6,484,000		6,469,000
Gross Unrealized Losses	0		0
Investment securities available for sale	133,924,000		137,769,000
Collateralized Mortgage Obligations [Member]
Available for sale [Abstract]
Amortized Cost	21,470,000		22,105,000
Gross Unrealized Gains	273,000		423,000
Gross Unrealized Losses	(352,000)		(531,000)
Investment securities available for sale	21,391,000		21,997,000
Mortgage-Backed Securities [Member]
Available for sale [Abstract]
Amortized Cost	91,211,000		92,095,000
Gross Unrealized Gains	388,000		88,000
Gross Unrealized Losses	(515,000)		(1,264,000)
Investment securities available for sale	91,084,000		90,919,000
Corporate Bonds [Member]
Available for sale [Abstract]
Amortized Cost	6,324,000		6,336,000
Gross Unrealized Gains	142,000		90,000
Gross Unrealized Losses	(17,000)		(18,000)
Investment securities available for sale	$ 6,449,000		$ 6,408,000

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LOANS, Loans Modified as Troubled Debt Restructurings (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015 Loan	Mar. 31, 2014 Loan	Dec. 31, 2014 Loan
Troubled debt restructuring at end of period [Abstract]
Number of Loans	71		70
Outstanding Recorded Balance	$ 18,741		$ 19,673
Troubled debt restructured during year [Abstract]
Number of Loans	3	3
Pre-Modification, Outstanding Recorded Balance	206	377
Post-modification, Outstanding Recorded Balance	211	377
Defaulted Troubled Debt Restructurings [Member]
Troubled debt restructured during year [Abstract]
Number of Loans	0	2
Pre-Modification, Outstanding Recorded Balance	0	1,596
Commercial and Industrial [Member]
Troubled debt restructuring at end of period [Abstract]
Number of Loans	30		31
Outstanding Recorded Balance	2,721		3,683
Troubled debt restructured during year [Abstract]
Number of Loans	1	3
Pre-Modification, Outstanding Recorded Balance	12	377
Post-modification, Outstanding Recorded Balance	12	377
Commercial Real Estate [Member]
Troubled debt restructuring at end of period [Abstract]
Number of Loans	8		8
Outstanding Recorded Balance	10,057		10,179
Commercial Real Estate [Member] | Defaulted Troubled Debt Restructurings [Member]
Troubled debt restructured during year [Abstract]
Number of Loans	0	2
Pre-Modification, Outstanding Recorded Balance	0	1,596
Residential Mortgages [Member]
Troubled debt restructuring at end of period [Abstract]
Number of Loans	21		19
Outstanding Recorded Balance	4,478		4,314
Troubled debt restructured during year [Abstract]
Number of Loans	2	0
Pre-Modification, Outstanding Recorded Balance	194	0
Post-modification, Outstanding Recorded Balance	199	0
Home Equity [Member]
Troubled debt restructuring at end of period [Abstract]
Number of Loans	5		5
Outstanding Recorded Balance	1,208		1,216
Consumer [Member]
Troubled debt restructuring at end of period [Abstract]
Number of Loans	7		7
Outstanding Recorded Balance	$ 277		$ 281

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FAIR VALUE, Recurring Basis (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Assets [Abstract]
Total	$ 291,557	$ 298,670
Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Total	291,557	298,670
Liabilities [Abstract]
Total	752	752
Fair Value, Measurements, Recurring [Member] | Derivative [Member]
Liabilities [Abstract]
Derivatives	752	752
Fair Value, Measurements, Recurring [Member] | U.S. Government Agency Securities [Member]
Assets [Abstract]
Total	38,709	41,577
Fair Value, Measurements, Recurring [Member] | Obligations of States and Political Subdivisions [Member]
Assets [Abstract]
Total	133,924	137,769
Fair Value, Measurements, Recurring [Member] | Collateralized Mortgage Obligations [Member]
Assets [Abstract]
Total	21,391	21,997
Fair Value, Measurements, Recurring [Member] | Mortgage-backed Securities [Member]
Assets [Abstract]
Total	91,084	90,919
Fair Value, Measurements, Recurring [Member] | Corporate Bonds [Member]
Assets [Abstract]
Total	6,449	6,408
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets [Abstract]
Total	291,557	298,670
Liabilities [Abstract]
Total	0	0
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Derivative [Member]
Liabilities [Abstract]
Derivatives	0	0
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | U.S. Government Agency Securities [Member]
Assets [Abstract]
Total	38,709	41,577
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Obligations of States and Political Subdivisions [Member]
Assets [Abstract]
Total	133,924	137,769
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Collateralized Mortgage Obligations [Member]
Assets [Abstract]
Total	21,391	21,997
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Mortgage-backed Securities [Member]
Assets [Abstract]
Total	91,084	90,919
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Corporate Bonds [Member]
Assets [Abstract]
Total	6,449	6,408
Fair Value, Measurements, Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets [Abstract]
Total	0	0
Liabilities [Abstract]
Total	752	752
Fair Value, Measurements, Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Derivative [Member]
Liabilities [Abstract]
Derivatives	752	752
Fair Value, Measurements, Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | U.S. Government Agency Securities [Member]
Assets [Abstract]
Total	0	0
Fair Value, Measurements, Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Obligations of States and Political Subdivisions [Member]
Assets [Abstract]
Total	0	0
Fair Value, Measurements, Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Collateralized Mortgage Obligations [Member]
Assets [Abstract]
Total	0	0
Fair Value, Measurements, Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Mortgage-backed Securities [Member]
Assets [Abstract]
Total	0	0
Fair Value, Measurements, Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Corporate Bonds [Member]
Assets [Abstract]
Total	$ 0	$ 0

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CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Cash and cash equivalents
Cash and non-interest-bearing deposits due from banks	$ 46,886	$ 41,140
Interest-bearing deposits due from banks	12,138	13,376
Federal funds sold	0	1,000
Total cash and cash equivalents	59,024	55,516
Interest-bearing time deposits in other banks	10,000	10,000
Federal Reserve Bank, Federal Home Loan Bank and other stock	6,800	8,600
Investment securities:
Available for sale, at fair value	291,557	298,670
Held to maturity (fair value of $65,414 and $64,796, respectively)	62,191	62,270
Total investment securities	353,748	360,940
Loans	1,382,160	1,355,427
Allowance for loan losses	19,325	19,200
Net loans	1,362,835	1,336,227
Loans held for sale	2,836	26,495
Premises and equipment, net	23,219	23,641
Bank owned life insurance	45,418	45,109
Deferred taxes	14,886	15,714
Accrued interest and loan fees receivable	6,482	5,676
Goodwill and other intangibles	3,043	2,991
Other assets	3,666	4,374
TOTAL ASSETS	1,891,957	1,895,283
LIABILITIES & STOCKHOLDERS' EQUITY
Demand deposits	682,593	683,634
Savings, N.O.W. and money market deposits	685,891	653,667
Subtotal core deposits	1,368,484	1,337,301
Time deposits	223,188	218,759
Total deposits	1,591,672	1,556,060
Borrowings	90,000	130,000
Unfunded pension liability	6,192	6,303
Capital leases	4,483	4,511
Other liabilities	12,050	15,676
TOTAL LIABILITIES	1,704,397	1,712,550
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock (par value $2.50; 15,000,000 shares authorized; 13,891,390 shares and 13,836,508 shares issued at March 31, 2015 and December 31, 2014, respectively; 11,725,652 shares and 11,670,770 shares outstanding at March 31, 2015 and December 31, 2014, respectively)	34,728	34,591
Surplus	44,495	44,230
Retained earnings	119,478	116,169
Treasury stock at par (2,165,738 shares)	(5,414)	(5,414)
Accumulated other comprehensive loss, net of tax	(5,727)	(6,843)
TOTAL STOCKHOLDERS' EQUITY	187,560	182,733
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 1,891,957	$ 1,895,283

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LOANS, Textual (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Dec. 31, 2014
Allowance for Loan Losses (Additional Textual) [Abstract]
Number of consecutive years	5 years
Threshold loan amount for annual rating review	$ 500
Allocation of specific reserve regarding troubled debt restructuring	745	790
Troubled debt restructuring funds committed	$ 45	$ 100
Minimum repayment period	2 years

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) [Abstract]
Change in unrealized gain (loss) on securities available for sale, tax	$ 703	$ 2,681
Change in unrealized loss on securities transferred, tax	$ 27	$ (920)

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INVESTMENT SECURITIES, Other Disclosures (Details) (USD $)	3 Months Ended			12 Months Ended
	Mar. 31, 2015	Dec. 31, 2014	Mar. 31, 2014	Dec. 31, 2013
Investment securities other disclosures [Abstract]
Sale of Visa Class B equity securities (in shares)				100,000
Proceeds from sale of Visa Shares				$ 7,800,000
Contingent liability from counterparty estimated future exposure from Visa litigation	752,000	752,000
Payment to the purchaser of Visa Class B shares		180,000
Carrying Costs For Visa Litigation Expensed In The Period	70,000		59,000
US Government agency securities held as available-for-sale pledged as collateral	$ 3,000,000
Shares of Visa Class B securities held (in shares)	38,638

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FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Tables)

3 Months Ended

Mar. 31, 2015

FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Reconciliation of basic and diluted weighted average number of common shares outstanding

The reconciliation of basic and diluted weighted average number of common shares outstanding for the three months ended March 31, 2015 and 2014 follows.

	Three Months Ended March 31,
	2015		2014
Weighted average common shares outstanding		11,602,924		11,573,014
Weighted average unvested restricted shares		91,503		-
Weighted average shares for basic earnings per share		11,694,427		11,573,014
Additional diluted shares:
Stock options		68,672		58,448
Weighted average shares for diluted earnings per share		11,763,099		11,631,462

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LOANS (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014	Mar. 31, 2014	Dec. 31, 2013
Categorizes total loans [Abstract]
Gross Loans	$ 1,382,160	$ 1,355,427
Allowance for loan losses	(19,325)	(19,200)	(17,737)	(17,263)
Net loans	1,362,835	1,336,227
Commercial and Industrial [Member]
Categorizes total loans [Abstract]
Gross Loans	178,812	177,813
Commercial Real Estate [Member]
Categorizes total loans [Abstract]
Gross Loans	579,873	560,524
Allowance for loan losses	(7,352)	(6,777)	(7,208)	(6,572)
Multifamily [Member]
Categorizes total loans [Abstract]
Gross Loans	322,229	309,666
Allowance for loan losses	(4,467)	(4,018)	(2,640)	(2,159)
Mixed Use Commercial [Member]
Categorizes total loans [Abstract]
Gross Loans	35,333	34,806
Allowance for loan losses	(273)	(261)	(87)	(54)
Real Estate Construction [Member]
Categorizes total loans [Abstract]
Gross Loans	24,608	26,206
Allowance for loan losses	(360)	(383)	(217)	(88)
Residential Mortgages [Member]
Categorizes total loans [Abstract]
Gross Loans	184,977	187,828
Allowance for loan losses	(2,618)	(3,027)	(2,627)	(2,463)
Home Equity [Member]
Categorizes total loans [Abstract]
Gross Loans	49,440	50,982
Consumer [Member]
Categorizes total loans [Abstract]
Gross Loans	6,888	7,602
Allowance for loan losses	$ (155)	$ (166)

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INVESTMENT SECURITIES (Tables)

3 Months Ended

Mar. 31, 2015

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, fair value and gross unrealized gains and losses of the Company’s investment securities available for sale and held to maturity at March 31, 2015 and December 31, 2014 were as follows (in thousands):

	March 31, 2015									December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale:
U.S. Government agency securities	$	38,974	$	8	$	(273	)	$	38,709	$	42,474	$	-	$	(897	)	$	41,577
Obligations of states and political subdivisions		127,440		6,484		-			133,924		131,300		6,469		-			137,769
Collateralized mortgage obligations		21,470		273		(352	)		21,391		22,105		423		(531	)		21,997
Mortgage-backed securities		91,211		388		(515	)		91,084		92,095		88		(1,264	)		90,919
Corporate bonds		6,324		142		(17	)		6,449		6,336		90		(18	)		6,408
Total available for sale securities		285,419		7,295		(1,157	)		291,557		294,310		7,070		(2,710	)		298,670
Held to maturity:
U.S. Government agency securities		48,433		2,431		-			50,864		48,365		1,717		-			50,082
Obligations of states and political subdivisions		13,758		792		-			14,550		13,905		809		-			14,714
Total held to maturity securities		62,191		3,223		-			65,414		62,270		2,526		-			64,796
Total investment securities	$	347,610	$	10,518	$	(1,157	)	$	356,971	$	356,580	$	9,596	$	(2,710	)	$	363,466

Investment securities amortized cost, maturities, and approximate fair value

The amortized cost, contractual maturities and fair value of the Company’s investment securities at March 31, 2015 (in thousands) are presented in the table below. Collateralized mortgage obligations (“CMOs”) and mortgage-backed securities (“MBS”) assume maturity dates pursuant to average lives.

	March 31, 2015
	Amortized Cost		Fair Value
Securities available for sale:
Due in one year or less	$	28,100	$	28,595
Due from one to five years		143,494		147,769
Due from five to ten years		113,825		115,193
Total securities available for sale		285,419		291,557
Securities held to maturity:
Due in one year or less		1,630		1,644
Due from one to five years		5,392		5,792
Due from five to ten years		32,073		33,256
Due after ten years		23,096		24,722
Total securities held to maturity		62,191		65,414
Total investment securities	$	347,610	$	356,971

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 realized gains and losses are shown below for the periods indicated (in thousands). Realized gains are also inclusive of gains on called securities.

	Three Months Ended March 31,
	2015		2014
Proceeds	$	531	$	-
Gross realized gains	$	26	$	-
Gross realized losses		-		-
Net realized gains	$	26	$	-

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

Information pertaining to securities with unrealized losses at March 31, 2015 and December 31, 2014, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows (in thousands):

	Less than 12 months					12 months or longer					Total
March 31, 2015	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Government agency securities	$	13,919	$	(60	)	$	19,787	$	(213	)	$	33,706	$	(273	)
Collateralized mortgage obligations		-		-			8,476		(352	)		8,476		(352	)
Mortgage-backed securities		20,712		(115	)		27,159		(400	)		47,871		(515	)
Corporate bonds		-		-			2,983		(17	)		2,983		(17	)
Total	$	34,631	$	(175	)	$	58,405	$	(982	)	$	93,036	$	(1,157	)

	Less than 12 months				12 months or longer					Total
December 31, 2014	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Government agency securities	$	-	$	-	$	41,577	$	(897	)	$	41,577	$	(897	)
Collateralized mortgage obligations		-		-		8,417		(531	)		8,417		(531	)
Mortgage-backed securities		-		-		81,510		(1,264	)		81,510		(1,264	)
Corporate bonds		-		-		2,982		(18	)		2,982		(18	)
Total	$	-	$	-	$	134,486	$	(2,710	)	$	134,486	$	(2,710	)

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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (USD $) In Thousands	Common stock [Member]	Surplus [Member]	Retained earnings [Member]	Treasury stock [Member]	Accumulated other comprehensive loss, net of tax [Member]	Total
Balance at Dec. 31, 2013	$ 34,348	$ 43,280	$ 102,273	$ (5,414)	$ (7,289)
Net income			3,720			3,720
Dividend reinvestment	0	0
Stock options exercised	0	0
Stock-based compensation	0	165
Other comprehensive income					3,088	6,808
Cash dividend on common stock ($0.06 per share in 2015)			0
Balance at Mar. 31, 2014	34,348	43,445	105,993	(5,414)	(4,201)	174,171
Balance at Dec. 31, 2014	34,591	44,230	116,169	(5,414)	(6,843)	182,733
Net income			4,009			4,009
Dividend reinvestment	18	143
Stock options exercised	3	16
Stock-based compensation	116	106
Other comprehensive income					1,116	5,125
Cash dividend on common stock ($0.06 per share in 2015)			(700)
Balance at Mar. 31, 2015	$ 34,728	$ 44,495	$ 119,478	$ (5,414)	$ (5,727)	$ 187,560

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CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Investment securities:
Held to maturity, fair value	$ 65,414	$ 64,796
STOCKHOLDERS' EQUITY
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)	13,891,390	13,836,508
Common Stock, shares outstanding (in shares)	11,725,652	11,670,770
Treasury Stock, shares (in shares)	2,165,738	2,165,738

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REGULATORY MATTERS

3 Months Ended

Mar. 31, 2015

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, tier 1 and common equity tier 1 capital, as defined in the federal banking regulations, to risk-weighted assets and of tier 1 capital to adjusted average assets (leverage). Management believes, as of March 31, 2015, that the Company and the Bank met all such capital adequacy requirements to which it is subject.

In July 2013, the Office of the Comptroller of the Currency (“OCC”) approved new rules on regulatory capital applicable to national banks, implementing Basel III. Most banking organizations were required to apply the new capital rules on January 1, 2015. The final rules set a new common equity tier 1 requirement and higher minimum tier 1 requirements for all banking organizations. They also place 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 rules revise the prompt corrective action framework to incorporate the new regulatory capital minimums. They also enhance risk sensitivity and address 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 Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The Company’s implementation of the new rules on January 1, 2015 did not have a material impact on our capital needs.

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

	Actual capital ratios					Minimum for capital adequacy					Minimum to be Well Capitalized under prompt corrective action provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
March 31, 2015
Total capital to risk-weighted assets	$	209,314		13.63	%	$	122,866		8.00	%	$	153,582		10.00	%
Tier 1 capital to risk-weighted assets		190,111		12.38	%		92,149		6.00	%		122,866		8.00	%
Common equity tier 1 capital to risk-weighted assets		190,111		12.38	%		69,112		4.50	%		99,829		6.50	%
Tier 1 capital to adjusted average assets (leverage)		190,111		10.02	%		75,915		4.00	%		94,894		5.00	%
December 31, 2014
Total capital to risk-weighted assets	$	201,476		13.25	%	$	121,608		8.00	%	$	152,010		10.00	%
Tier 1 capital to risk-weighted assets		182,469		12.00	%		60,804		4.00	%		91,206		6.00	%
Tier 1 capital to adjusted average assets (leverage)		182,469		9.96	%		73,312		4.00	%		91,640		5.00	%

The Company’s tier 1 leverage, common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios were 10.13%, 12.52%, 12.52% and 13.77%, respectively, at March 31, 2015. The Company’s tier 1 leverage, tier 1 risk-based and total risk-based capital ratios were 10.04%, 12.10% and 13.35%, respectively, at December 31, 2014.

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 for the retirement of any preferred stock. In addition, a national bank may not pay dividends in an amount greater than its undivided profits or declare any dividends if such declaration would leave the bank inadequately capitalized.

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Document and Entity Information	3 Months Ended
	Mar. 31, 2015	Apr. 15, 2015
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		11,728,384
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q1
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2015

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FAIR VALUE

3 Months Ended

Mar. 31, 2015

FAIR VALUE [Abstract]

FAIR VALUE

9. 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.

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

	Level in	March 31, 2015				December 31, 2014
	Fair Value Hierarchy	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets:
Cash and due from banks	Level 1	$	59,024	$	59,024	$	54,516	$	54,516
Federal funds sold	Level 2		-		-		1,000		1,000
Interest-bearing time deposits in other banks	Level 2		10,000		10,009		10,000		10,017
Federal Reserve Bank, Federal Home Loan Bank and other stock	N/A		6,800		N/A		8,600		N/A
Investment securities held to maturity	Level 2		62,191		65,414		62,270		64,796
Investment securities available for sale	Level 2		291,557		291,557		298,670		298,670
Loans held for sale	Level 2		2,836		2,836		26,495		26,495
Loans, net of allowance	Level 2, 3 (1)		1,362,835		1,364,305		1,336,227		1,329,041
Accrued interest and loan fees receivable	Level 2		6,482		6,482		5,676		5,676
Financial Liabilities:
Non-maturity deposits	Level 2		1,368,484		1,368,484		1,337,301		1,337,301
Time deposits	Level 2		223,188		223,570		218,759		219,089
Borrowings	Level 2		90,000		90,003		130,000		130,004
Accrued interest payable	Level 2		131		131		136		136
Derivatives	Level 3		752		752		752		752

(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 securities held to maturity and securities available for sale, the fair value equals quoted market price if available. If a quoted market price is not available, fair value is estimated using a quoted market price for similar securities. For cash and due from banks, federal funds sold, accrued interest and loan fees receivable, non-maturity deposits and accrued interest payable, the carrying amount is a reasonable estimate of fair value. Determining the fair value of Federal Reserve Bank, Federal Home Loan Bank and other stock is not practicable due to restrictions placed on its transferability. Interest-bearing time deposits in other banks, time deposits and borrowings 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. Assumptions regarding credit risk, cash flows, and discount rates are made using availablemarket information and specific borrower information.

Loans identified as impaired are measured using one of three methods: the fair value of collateral less estimated costs to sell, the present value of expected future cash flows or the loan’s observable market price. Those measured using the fair value of collateral or the loan’s observable market price 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.

For the periods presented, loans held for sale were performing and carried at cost. The carrying cost is a reasonable estimate of fair value due to their short-term nature.

During 2013, the Company entered into derivative swap contracts with the purchaser of its Visa Class B shares. The fair value of these derivatives is measured using an internal model that includes the use of probability weighted scenarios for estimates of Visa’s aggregate exposure to the litigation matters, with consideration of amounts funded by Visa into its escrow account for this litigation. At March 31, 2015, the Company estimates a fair value for these derivatives at approximately 10% of the net proceeds from the Company’s sale of the related Visa Class B shares. Since this estimation process requires application of judgment in developing significant unobservable inputs used to determine the possible outcomes and the probability weighting assigned to each scenario, these derivatives have been classified as Level 3 within the valuation hierarchy. (See also Note 3. Investment Securities contained herein.)

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

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

Assets:	March 31, 2015		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Impaired loans	$	3,338	$	3,338
Total	$	3,338	$	3,338

Assets:	December 31, 2014		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Impaired loans	$	3,333	$	3,333
Total	$	3,333	$	3,333

The Company had no liabilities measured at fair value on a non-recurring basis at March 31, 2015 and December 31, 2014.

The following presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis (dollars in thousands):

	Fair Value at
Assets:	March 31, 2015		December 31, 2014		Valuation Technique	Unobservable Inputs	Discount
Impaired loans:
Commercial and industrial	$	31	$	40	Third party appraisal and/or internal evaluation	Discount to appraised value (1); estimated selling costs	5.6% to 50%
Residential mortgages		3,107		3,097	Third party appraisal	Discount to appraised value	25%
Home equity		104		98	Third party appraisal	Discount to appraised value	25%
Consumer		96		98	Third party appraisal	Discount to appraised value	25%
Total	$	3,338	$	3,333

(1) The Company also makes adjustments to the appraised value based upon evaluation of corporate assets, such as inventory and accounts receivable, and various other information, such as market conditions and other factors. Higher discounts may be applied to certain assets, such as inventory and accounts receivable.

The following presents fair value measurements on a recurring basis at March 31, 2015 and December 31, 2014 (in thousands):

			Fair Value Measurements Using
Assets:	March 31, 2015		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government agency securities	$	38,709	$	38,709	$	-
Obligations of states and political subdivisions		133,924		133,924		-
Collateralized mortgage obligations		21,391		21,391		-
Mortgage-backed securities		91,084		91,084		-
Corporate bonds		6,449		6,449		-
Total	$	291,557	$	291,557	$	-
Liabilities:
Derivatives		752	$	-	$	752
Total	$	752	$	-	$	752

			Fair Value Measurements Using
Assets:	December 31, 2014		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government agency securities	$	41,577	$	41,577	$	-
Obligations of states and political subdivisions		137,769		137,769		-
Collateralized mortgage obligations		21,997		21,997		-
Mortgage-backed securities		90,919		90,919		-
Corporate bonds		6,408		6,408		-
Total	$	298,670	$	298,670	$	-
Liabilities:
Derivatives		752	$	-	$	752
Total	$	752	$	-	$	752

Reconciliations for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) follow (in thousands).

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Three Months Ended March 31,
	2015		2014
	Liabilities Derivatives		Liabilities Derivatives
Balance, January 1	$	752	$	932
Net change		-		-
Balance, March 31	$	752	$	932

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
INTEREST INCOME
Loans and loan fees	$ 14,569	$ 12,877
U.S. Government agency obligations	541	628
Obligations of states and political subdivisions	1,335	1,505
Collateralized mortgage obligations	182	250
Mortgage-backed securities	445	501
Corporate bonds	38	90
Federal funds sold and interest-bearing deposits due from banks	23	46
Dividends	60	38
Total interest income	17,193	15,935
INTEREST EXPENSE
Saving, N.O.W. and money market deposits	274	292
Time deposits	294	345
Borrowings	108	0
Total interest expense	676	637
Net interest income	16,517	15,298
Provision for loan losses	250	250
Net interest income after provision for loan losses	16,267	15,048
NON-INTEREST INCOME
Service charges on deposit accounts	747	1,003
Other service charges, commissions and fees	593	679
Fiduciary fees	0	279
Net gain on sale of securities available for sale	26	0
Net gain on sale of portfolio loans	198	0
Net gain on sale of mortgage loans originated for sale	144	93
Net gain on sale of premises and equipment	0	642
Income from bank owned life insurance	309	354
Other operating income	74	42
Total non-interest income	2,091	3,092
OPERATING EXPENSES
Employee compensation and benefits	8,606	8,861
Occupancy expense	1,462	1,435
Equipment expense	385	449
Consulting and professional services	338	551
FDIC assessment	290	267
Data processing	570	573
Branch consolidation costs (credits)	0	(170)
Other operating expenses	1,457	1,343
Total operating expenses	13,108	13,309
Income before income tax expense	5,250	4,831
Income tax expense	1,241	1,111
NET INCOME	$ 4,009	$ 3,720
EARNINGS PER COMMON SHARE - BASIC (in dollars per shares)	$ 0.34	$ 0.32
EARNINGS PER COMMON SHARE - DILUTED (in dollars per shares)	$ 0.34	$ 0.32
WEIGHTED AVERAGE COMMON SHARES - BASIC (in shares)	11,694,427	11,573,014
WEIGHTED AVERAGE COMMON SHARES - DILUTED (in shares)	11,763,099	11,631,462
CASH DIVIDENDS DECLARED PER COMMON SHARE	$ 0.06	$ 0

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INVESTMENT SECURITIES

3 Months Ended

Mar. 31, 2015

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 in AOCI 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. 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 income and determined using the adjusted cost of the specific security sold.

During the full year of 2014, investment securities with a fair value of $48 million and unrealized loss of $3.2 million were transferred from available for sale to held to maturity. In accordance with U.S. GAAP, the securities were transferred at fair value, which became the amortized cost. The discount will be accreted to interest income over the remaining life of the security. The unrealized holding losses at the date of transfer remained in AOCI and will be amortized simultaneously against interest income. Those entries will offset or mitigate each other.

The amortized cost, fair value and gross unrealized gains and losses of the Company’s investment securities available for sale and held to maturity at March 31, 2015 and December 31, 2014 were as follows (in thousands):

	March 31, 2015									December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale:
U.S. Government agency securities	$	38,974	$	8	$	(273	)	$	38,709	$	42,474	$	-	$	(897	)	$	41,577
Obligations of states and political subdivisions		127,440		6,484		-			133,924		131,300		6,469		-			137,769
Collateralized mortgage obligations		21,470		273		(352	)		21,391		22,105		423		(531	)		21,997
Mortgage-backed securities		91,211		388		(515	)		91,084		92,095		88		(1,264	)		90,919
Corporate bonds		6,324		142		(17	)		6,449		6,336		90		(18	)		6,408
Total available for sale securities		285,419		7,295		(1,157	)		291,557		294,310		7,070		(2,710	)		298,670
Held to maturity:
U.S. Government agency securities		48,433		2,431		-			50,864		48,365		1,717		-			50,082
Obligations of states and political subdivisions		13,758		792		-			14,550		13,905		809		-			14,714
Total held to maturity securities		62,191		3,223		-			65,414		62,270		2,526		-			64,796
Total investment securities	$	347,610	$	10,518	$	(1,157	)	$	356,971	$	356,580	$	9,596	$	(2,710	)	$	363,466

At March 31, 2015 and December 31, 2014, investment securities carried at $246 million and $245 million, respectively, were pledged for public funds on deposit and as collateral for the Company’s derivative swap contracts.

The amortized cost, contractual maturities and fair value of the Company’s investment securities at March 31, 2015 (in thousands) are presented in the table below. Collateralized mortgage obligations (“CMOs”) and mortgage-backed securities (“MBS”) assume maturity dates pursuant to average lives.

	March 31, 2015
	Amortized Cost		Fair Value
Securities available for sale:
Due in one year or less	$	28,100	$	28,595
Due from one to five years		143,494		147,769
Due from five to ten years		113,825		115,193
Total securities available for sale		285,419		291,557
Securities held to maturity:
Due in one year or less		1,630		1,644
Due from one to five years		5,392		5,792
Due from five to ten years		32,073		33,256
Due after ten years		23,096		24,722
Total securities held to maturity		62,191		65,414
Total investment securities	$	347,610	$	356,971

The proceeds from sales of securities available for sale and the associated realized gains and losses are shown below for the periods indicated (in thousands). Realized gains are also inclusive of gains on called securities.

	Three Months Ended March 31,
	2015		2014
Proceeds	$	531	$	-
Gross realized gains	$	26	$	-
Gross realized losses		-		-
Net realized gains	$	26	$	-

Information pertaining to securities with unrealized losses at March 31, 2015 and December 31, 2014, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows (in thousands):

	Less than 12 months					12 months or longer					Total
March 31, 2015	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Government agency securities	$	13,919	$	(60	)	$	19,787	$	(213	)	$	33,706	$	(273	)
Collateralized mortgage obligations		-		-			8,476		(352	)		8,476		(352	)
Mortgage-backed securities		20,712		(115	)		27,159		(400	)		47,871		(515	)
Corporate bonds		-		-			2,983		(17	)		2,983		(17	)
Total	$	34,631	$	(175	)	$	58,405	$	(982	)	$	93,036	$	(1,157	)

	Less than 12 months				12 months or longer					Total
December 31, 2014	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Government agency securities	$	-	$	-	$	41,577	$	(897	)	$	41,577	$	(897	)
Collateralized mortgage obligations		-		-		8,417		(531	)		8,417		(531	)
Mortgage-backed securities		-		-		81,510		(1,264	)		81,510		(1,264	)
Corporate bonds		-		-		2,982		(18	)		2,982		(18	)
Total	$	-	$	-	$	134,486	$	(2,710	)	$	134,486	$	(2,710	)

The corporate bonds with unrealized losses for twelve months or longer at March 31, 2015 in the table above carry investment grade ratings by all major credit rating agencies including both Moody’s and Standard  & Poor’s. The unrealized losses on these bonds were a result of the current interest rate environment and the corresponding shape of the yield curve. The losses were not related to a deterioration of the quality of the issuer or any company-specific adverse events. All other securities with unrealized losses for twelve months or longer at March 31, 2015 are issued or guaranteed by U.S. Government agencies or sponsored enterprises and the related unrealized losses resulted solely from the current interest rate environment and the corresponding shape of the yield curve. The Company does not intend to sell and it is not more likely than not that the Company will be required to sell these securities prior to their recovery to a level equal to or greater than amortized cost. Management has determined that no other-than-temporary impairment (“OTTI”) was present at March 31, 2015.

The Bank was a member of the Visa USA payment network and was issued Class B shares upon Visa’s initial public offering in March 2008. The Visa Class B shares are transferable only under limited circumstances until they can be converted into shares of the publicly traded class of stock. This conversion 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 conversion ratio of Visa Class B shares into 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 its Visa Class B shares on its balance sheet at zero value.

During 2013, the Bank sold 100,000 Visa Class B shares to another Visa USA member financial institution at a gross pre-tax gain of approximately $7.8 million which was recorded in non-interest income in the Company’s statement of income. In conjunction with the sale, the Company entered into derivative swap contracts with the purchaser of these Visa Class B shares which provide for settlements between the purchaser and the Company based upon a change in the conversion ratio of Visa Class B shares into Visa Class A shares.

In the fourth quarter of 2014, the Bank received notification of a change in the conversion ratio of Visa Class B shares into Visa Class A shares and was required to make a payment of $180 thousand to the purchaser of the Visa Class B shares it sold in 2013. The Company’s recorded liability representing the fair value of the derivative was $752 thousand at March 31, 2015 and December 31, 2014.

The present value of estimated future fees to be paid to the derivative counterparty, or carrying costs, calculated by reference to the market price of the Visa Class A shares at a fixed rate of interest are expensed as incurred. For the three months ended March 31, 2015 and 2014, $70 thousand and $59 thousand, respectively, in such carrying costs was expensed. The Company has pledged U.S. Government agency securities held in its available for sale portfolio, with a market value of approximately $3 million at March 31, 2015, as collateral for the derivative swap contracts.

Subjectivity has been used in estimating the fair value of both the derivative liability and the associated fees, but management believes that these fair value estimates are adequate based on available information. However, future developments in the litigation could require potentially significant changes to these estimates.

At March 31, 2015, the Company still owned 38,638 Visa Class B shares subsequent to the sales described here. Upon termination of the existing transfer restriction and settlement of the litigation, and to the extent that the Company continues to own such Visa Class B shares in the future, the Company expects to record its Visa Class B shares at fair value.

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ACCUMULATED OTHER COMPREHENSIVE INCOME ("AOCI")

3 Months Ended

Mar. 31, 2015

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

ACCUMULATED OTHER COMPREHENSIVE INCOME ("AOCI")

2. ACCUMULATED OTHER COMPREHENSIVE INCOME (“AOCI”)

The changes in the Company’s AOCI by component, net of tax, for the three months ended March 31, 2015 and 2014 follow (in thousands).

	Three Months Ended March 31, 2015
	Unrealized Gains and Losses on Available for Sale Securities			Unrealized Losses on Securities Transferred from Available for Sale to Held to Maturity			Pension and Post- Retirement Plan Items			Total
Beginning balance	$	2,637		$	(1,805	)	$	(7,675	)	$	(6,843	)
Other comprehensive income before reclassifications		1,091			-			-			1,091
Amounts reclassified from AOCI		(16	)		41			-			25
Net other comprehensive income		1,075			41			-			1,116
Ending balance	$	3,712		$	(1,764	)	$	(7,675	)	$	(5,727	)

	Three Months Ended March 31, 2014
	Unrealized Gains and Losses on Available for Sale Securities			Unrealized Losses on Securities Transferred from Available for Sale to Held to Maturity			Pension and Post- Retirement Plan Items			Total
Beginning balance	$	(4,095	)	$	-		$	(3,194	)	$	(7,289	)
Other comprehensive income (loss) before reclassifications		4,700			(1,633	)		-			3,067
Amounts reclassified from AOCI		-			21			-			21
Net other comprehensive income (loss)		4,700			(1,612	)		-			3,088
Ending balance	$	605		$	(1,612	)	$	(3,194	)	$	(4,201	)

The table below presents reclassifications out of AOCI for the three months ended March 31, 2015 and 2014 (in thousands).

	Amount Reclassified from AOCI
	Three Months Ended March 31,						Affected Line Item in the Statement
Details about AOCI Components	2015			2014			Where Net Income is Presented
Unrealized gains and losses on available for sale securities	$	26		$	-		Net gain on sale of securities available for sale
Unrealized losses on securities transferred from available for sale to held to maturity		(68	)		(33	)	Interest income - U.S. Government agency obligations
		17			12		Income tax expense
Total reclassifications, net of tax	$	(25	)	$	(21	)

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ACCUMULATED OTHER COMPREHENSIVE INCOME ("AOCI") (Tables)

3 Months Ended

Mar. 31, 2015

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

Changes in AOCI by component, net of tax

The changes in the Company’s AOCI by component, net of tax, for the three months ended March 31, 2015 and 2014 follow (in thousands).

	Three Months Ended March 31, 2015
	Unrealized Gains and Losses on Available for Sale Securities			Unrealized Losses on Securities Transferred from Available for Sale to Held to Maturity			Pension and Post- Retirement Plan Items			Total
Beginning balance	$	2,637		$	(1,805	)	$	(7,675	)	$	(6,843	)
Other comprehensive income before reclassifications		1,091			-			-			1,091
Amounts reclassified from AOCI		(16	)		41			-			25
Net other comprehensive income		1,075			41			-			1,116
Ending balance	$	3,712		$	(1,764	)	$	(7,675	)	$	(5,727	)

	Three Months Ended March 31, 2014
	Unrealized Gains and Losses on Available for Sale Securities			Unrealized Losses on Securities Transferred from Available for Sale to Held to Maturity			Pension and Post- Retirement Plan Items			Total
Beginning balance	$	(4,095	)	$	-		$	(3,194	)	$	(7,289	)
Other comprehensive income (loss) before reclassifications		4,700			(1,633	)		-			3,067
Amounts reclassified from AOCI		-			21			-			21
Net other comprehensive income (loss)		4,700			(1,612	)		-			3,088
Ending balance	$	605		$	(1,612	)	$	(3,194	)	$	(4,201	)

Reclassifications out of AOCI

The table below presents reclassifications out of AOCI for the three months ended March 31, 2015 and 2014 (in thousands).

	Amount Reclassified from AOCI
	Three Months Ended March 31,						Affected Line Item in the Statement
Details about AOCI Components	2015			2014			Where Net Income is Presented
Unrealized gains and losses on available for sale securities	$	26		$	-		Net gain on sale of securities available for sale
Unrealized losses on securities transferred from available for sale to held to maturity		(68	)		(33	)	Interest income - U.S. Government agency obligations
		17			12		Income tax expense
Total reclassifications, net of tax	$	(25	)	$	(21	)

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LEGAL PROCEEDINGS

3 Months Ended

Mar. 31, 2015

LEGAL PROCEEDINGS [Abstract]

LEGAL PROCEEDINGS

10. LEGAL PROCEEDINGS

Certain lawsuits and claims arising in the ordinary course of business may be filed or pending against us or our affiliates from time to time. In accordance with applicable accounting guidance, we establish accruals for all lawsuits, claims and expected settlements when we believe it is probable that a loss has been incurred and the amount of the loss is reasonably estimable. When a loss contingency is not both probable and estimable, we do not establish an accrual. Any such loss estimates are inherently uncertain, based on currently available information and are subject to management’s judgment and various assumptions. Due to the inherent subjectivity of these estimates and unpredictability of outcomes of legal proceedings, any amounts accrued may not represent the ultimate resolution of such matters.

To the extent we believe any potential loss relating to such lawsuits and claims may have a material impact on our liquidity, consolidated financial position, results of operations, and/or our business as a whole and is reasonably possible but not probable, we disclose information relating to any such potential loss, whether in excess of any established accruals or where there is no established accrual. We also disclose information relating to any material potential loss that is probable but not reasonably estimable. Where reasonably practicable, we will provide an estimate of loss or range of potential loss. No disclosures are generally made for any loss contingencies that are deemed to be remote.

Based upon information available to us and our review of lawsuits and claims filed or pending against us to date, we have not recognized a material accrual liability for these matters, nor do we currently expect it is reasonably possible that these matters will result in a material liability to the Company. However, the outcome of litigation and other legal and regulatory matters is inherently uncertain, and it is possible that one or more of such matters currently pending or threatened could have an unanticipated material adverse effect on our liquidity, consolidated financial position, results of operations, and/or our business as a whole, in the future.

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STOCK-BASED COMPENSATION

3 Months Ended

Mar. 31, 2015

STOCK-BASED COMPENSATION [Abstract]

STOCK-BASED COMPENSATION

6. STOCK-BASED COMPENSATION

Stock Options

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. 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.

No options were granted in 2015 or 2014. Options granted in 2013 and 2012 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.

The total intrinsic value of options exercised during the first three months of 2015 was $6 thousand. The total cash received from such option exercises was $19 thousand, excluding the tax benefit realized. In exercising those options, 1,000 shares of the Company’s common stock were issued. No stock options were exercised during the first three months of 2014.

Both plans provide for but do not require the grant of stock appreciation rights (“SARs”) that the holder may exercise instead of the underlying option. At March 31, 2015, there were 6,000 SARs outstanding related to options granted before 2011. The SARs had no intrinsic value at March 31, 2015. 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.

A summary of stock option activity follows:

	Number of Shares			Weighted-Average Exercise Price Per Share
Outstanding, January 1, 2015		251,100		$	16.33
Granted		-			-
Exercised		(1,000	)	$	18.18
Forfeited or expired		(10,000	)	$	22.84
Outstanding, March 31, 2015		240,100		$	16.06

The following summarizes shares subject to purchase from stock options outstanding and exercisable as of March 31, 2015:

		Outstanding					Exercisable
Range of Exercise Prices		Shares		Weighted-Average  Remaining  Contractual Life	Weighted-Average Exercise Price		Shares		Weighted-Average  Remaining  Contractual Life	Weighted-Average Exercise Price
$	10.00 - $14.00		120,000	6.9 years	$	11.97		83,334	6.9 years	$	12.45
$	14.01 - $20.00		98,100	8.3 years	$	17.47		42,438	8.2 years	$	16.73
$	20.01 - $30.00		5,000	3.8 years	$	28.30		5,000	3.8 years	$	28.30
$	30.01 - $40.00		17,000	1.8 years	$	33.12		17,000	1.8 years	$	33.12
			240,100	7.0 years	$	16.06		147,772	6.6 years	$	16.59

Restricted Stock Awards

Under the Company’s Amended and Restated 2009 Stock Incentive Plan (the “2009 Plan”), the Company can award options, SARs and restricted stock. During the first three months of 2015, the Company awarded 51,562 shares of restricted stock to certain key employees. Generally, the restricted stock awards currently outstanding vest over a three-year period commencing one year from the date of grant at a rate of one-third per year. A summary of restricted stock activity follows:

	Number of Shares			Weighted-Average Grant-Date Fair Value
Nonvested, January 1, 2015		72,350		$	22.51
Granted		51,562		$	22.76
Vested		-			-
Forfeited or expired		(4,975	)	$	22.52
Nonvested, March 31, 2015		118,937		$	22.62

The Company recognizes compensation expense for the fair value of stock options and restricted stock on a straight line basis over the requisite service period of the grants. Compensation expense related to stock-based compensation amounted to $222 thousand and $165 thousand for the three months ended March 31, 2015 and 2014, respectively. The remaining unrecognized compensation cost of approximately $211 thousand and $2.1 million at March 31, 2015 related to stock options and restricted stock, respectively, will be expensed over the remaining weighted average vesting period of approximately 1.5 years and 2.4 years, respectively.

Under the 2009 Plan, a total of 500,000 shares of the Company’s common stock were reserved for issuance, of which 166,561 shares remain for possible issuance at March 31, 2015. There are no remaining shares reserved for issuance under the 1999 Stock Option Plan.

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LOANS

3 Months Ended

Mar. 31, 2015

LOANS [Abstract]

LOANS

4. LOANS

At March 31, 2015 and December 31, 2014, net loans disaggregated by class consisted of the following (in thousands):

	March 31, 2015			December 31, 2014
Commercial and industrial	$	178,812		$	177,813
Commercial real estate		579,873			560,524
Multifamily		322,229			309,666
Mixed use commercial		35,333			34,806
Real estate construction		24,608			26,206
Residential mortgages		184,977			187,828
Home equity		49,440			50,982
Consumer		6,888			7,602
Gross loans		1,382,160			1,355,427
Allowance for loan losses		(19,325	)		(19,200	)
Net loans at end of period	$	1,362,835		$	1,336,227

The following summarizes the activity in the allowance for loan losses disaggregated by class for the periods indicated (in thousands).

	Three Months Ended March 31, 2015												Three Months Ended March 31, 2014
	Balance at beginning of period		Charge-offs			Recoveries		Provision (credit) for loan losses			Balance at end of period		Balance at beginning of period		Charge-offs			Recoveries		(Credit) provision for loan losses			Balance at end of period
Commercial and industrial	$	1,560	$	(492	)	$	343	$	587		$	1,998	$	2,615	$	(115	)	$	293	$	(312	)	$	2,481
Commercial real estate		6,777		-			7		568			7,352		6,572		-			12		624			7,208
Multifamily		4,018		-			-		449			4,467		2,159		-			-		481			2,640
Mixed use commercial		261		-			-		12			273		54		-			-		33			87
Real estate construction		383		-			-		(23	)		360		88		-			-		129			217
Residential mortgages		3,027		-			11		(420	)		2,618		2,463		-			4		160			2,627
Home equity		709		-			2		17			728		745		-			27		(54	)		718
Consumer		166		(1	)		5		(15	)		155		241		(2	)		5		(58	)		186
Unallocated		2,299		-			-		(925	)		1,374		2,326		-			-		(753	)		1,573
Total	$	19,200	$	(493	)	$	368	$	250		$	19,325	$	17,263	$	(117	)	$	341	$	250		$	17,737

Factors considered by management in determining loan 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.

The general component of the allowance covers non-impaired loans and is based on historical loss experience, adjusted for qualitative factors. 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.

At March 31, 2015 and December 31, 2014, the ending balance in the allowance for loan losses disaggregated by class and impairment methodology is as follows (in thousands). Also in the tables below are total loans at March 31, 2015 and December 31, 2014 disaggregated by class and impairment methodology (in thousands).

	Allowance for Loan Losses						Loan Balances
March 31, 2015	Individually evaluated for impairment		Collectively evaluated for impairment		Ending balance		Individually evaluated for impairment		Collectively evaluated for impairment		Ending balance
Commercial and industrial	$	10	$	1,988	$	1,998	$	3,764	$	175,048	$	178,812
Commercial real estate		-		7,352		7,352		10,302		569,571		579,873
Multifamily		-		4,467		4,467		-		322,229		322,229
Mixed use commercial		-		273		273		-		35,333		35,333
Real estate construction		-		360		360		-		24,608		24,608
Residential mortgages		771		1,847		2,618		5,651		179,326		184,977
Home equity		159		569		728		1,670		47,770		49,440
Consumer		88		67		155		398		6,490		6,888
Unallocated		-		1,374		1,374		-		-		-
Total	$	1,028	$	18,297	$	19,325	$	21,785	$	1,360,375	$	1,382,160

	Allowance for Loan Losses						Loan Balances
December 31, 2014	Individually evaluated for impairment		Collectively evaluated for impairment		Ending balance		Individually evaluated for impairment		Collectively evaluated for impairment		Ending balance
Commercial and industrial	$	16	$	1,544	$	1,560	$	4,889	$	172,924	$	177,813
Commercial real estate		-		6,777		6,777		10,214		550,310		560,524
Multifamily		-		4,018		4,018		-		309,666		309,666
Mixed use commercial		-		261		261		-		34,806		34,806
Real estate construction		-		383		383		-		26,206		26,206
Residential mortgages		809		2,218		3,027		5,422		182,406		187,828
Home equity		92		617		709		1,567		49,415		50,982
Consumer		88		78		166		323		7,279		7,602
Unallocated		-		2,299		2,299		-		-		-
Total	$	1,005	$	18,195	$	19,200	$	22,415	$	1,333,012	$	1,355,427

The following table presents the Company’s impaired loans disaggregated by class at March 31, 2015 and December 31, 2014 (in thousands).

	March 31, 2015						December 31, 2014
	Unpaid Principal Balance		Recorded Balance		Allowance Allocated		Unpaid Principal Balance		Recorded Balance		Allowance Allocated
With no allowance recorded:
Commercial and industrial	$	3,723	$	3,723	$	-	$	4,833	$	4,833	$	-
Commercial real estate		10,721		10,302		-		10,632		10,214		-
Residential mortgages		1,919		1,773		-		1,645		1,516		-
Home equity		1,407		1,407		-		1,377		1,377		-
Consumer		214		214		-		137		137		-
Subtotal		17,984		17,419		-		18,624		18,077		-
With an allowance recorded:
Commercial and industrial		42		41		10		57		56		16
Residential mortgages		3,877		3,878		771		3,906		3,906		809
Home equity		400		263		159		326		190		92
Consumer		182		184		88		185		186		88
Subtotal		4,501		4,366		1,028		4,474		4,338		1,005
Total	$	22,485	$	21,785	$	1,028	$	23,098	$	22,415	$	1,005

The following table presents the Company’s average recorded investment in impaired loans and the related interest income recognized disaggregated by class for the three months ended March 31, 2015 and 2014 (in thousands). No interest income was recognized on a cash basis on impaired loans for any of the periods presented. The interest income recognized on accruing impaired loans is shown in the following table.

	Three Months Ended March 31,
	2015				2014
	Average recorded investment in impaired loans		Interest income recognized on impaired loans		Average recorded investment in impaired loans		Interest income recognized on impaired loans
Commercial and industrial	$	4,551	$	33	$	7,567	$	107
Commercial real estate		10,208		50		11,558		99
Residential mortgages		5,411		38		5,036		36
Home equity		1,662		13		771		17
Consumer		383		3		170		2
Total	$	22,215	$	137	$	25,102	$	261

TDRs are 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 $745 thousand and $790 thousand of specific reserves to customers whose loan terms have been modified as TDRs as of March 31, 2015 and December 31, 2014, 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 $45 thousand and $100 thousand were committed to be advanced in connection with TDRs as of March 31, 2015 and December 31, 2014, 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.

Outstanding TDRs, disaggregated by class, at March 31, 2015 and December 31, 2014 are as follows (dollars in thousands):

	March 31, 2015				December 31, 2014
TDRs Outstanding	Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance
Commercial and industrial		30	$	2,721		31	$	3,683
Commercial real estate		8		10,057		8		10,179
Residential mortgages		21		4,478		19		4,314
Home equity		5		1,208		5		1,216
Consumer		7		277		7		281
Total		71	$	18,741		70	$	19,673

The following presents, disaggregated by class, information regarding TDRs executed during the three months ended March 31, 2015 and 2014 (dollars in thousands):

	Three Months Ended March 31,
	2015						2014
New TDRs	Number of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance		Number of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Commercial and industrial		1	$	12	$	12		3	$	377	$	377
Residential mortgages		2		194		199		-		-		-
Total		3	$	206	$	211		3	$	377	$	377

Presented below and disaggregated by class is information regarding loans modified as TDRs that had payment defaults of 90 days or more within twelve months of restructuring during the three months ended March 31, 2015 and 2014 (dollars in thousands).

	Three Months Ended March 31,
	2015				2014
Defaulted TDRs	Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance
Commercial real estate		-	$	-		2	$	1,596
Total		-	$	-		2	$	1,596

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

The following table presents a summary of non-performing assets for each period (in thousands):

	March 31, 2015		December 31, 2014
Non-accrual loans	$	12,292	$	12,981
Non-accrual loans held for sale		-		-
Loans 90 days past due and still accruing		-		-
OREO		-		-
Total non-performing assets	$	12,292	$	12,981
TDRs accruing interest	$	9,418	$	9,380
TDRs non-accruing	$	9,323	$	10,293

At March 31, 2015 and December 31, 2014, non-accrual loans disaggregated by class were as follows (dollars in thousands):

	March 31, 2015										December 31, 2014
	Non-accrual loans		% of Total			Total Loans		% of Total Loans			Non-accrual loans		% of Total			Total Loans		% of Total Loans
Commercial and industrial	$	3,035		24.7	%	$	178,812		0.2	%	$	4,060		31.3	%	$	177,813		0.3	%
Commercial real estate		6,647		54.1			579,873		0.5			6,556		50.5			560,524		0.5
Multifamily		-		-			322,229		-			-		-			309,666		-
Mixed use commercial		-		-			35,333		-			-		-			34,806		-
Real estate construction		-		-			24,608		-			-		-			26,206		-
Residential mortgages		2,074		16.9			184,977		0.2			2,020		15.6			187,828		0.1
Home equity		414		3.3			49,440		-			303		2.3			50,982		0.1
Consumer		122		1.0			6,888		-			42		0.3			7,602		-
Total	$	12,292		100.0	%	$	1,382,160		0.9	%	$	12,981		100.0	%	$	1,355,427		1.0	%

Additional interest income of approximately $180 thousand and $494 thousand would have been recorded during the three months ended March 31, 2015 and 2014, respectively, if non-accrual loans had performed in accordance with their original terms.

At March 31, 2015 and December 31, 2014, past due loans disaggregated by class were as follows (in thousands).

	Past Due
March 31, 2015	30 - 59 days			60 - 89 days			90 days and over			Total			Current			Total
Commercial and industrial	$	8		$	379		$	3,035		$	3,422		$	175,390		$	178,812
Commercial real estate		-			-			6,647			6,647			573,226			579,873
Multifamily		-			-			-			-			322,229			322,229
Mixed use commercial		-			-			-			-			35,333			35,333
Real estate construction		-			-			-			-			24,608			24,608
Residential mortgages		505			-			2,074			2,579			182,398			184,977
Home equity		199			-			414			613			48,827			49,440
Consumer		10			-			122			132			6,756			6,888
Total	$	722		$	379		$	12,292		$	13,393		$	1,368,767		$	1,382,160
% of Total Loans		0.1	%		0.0	%		0.9	%		1.0	%		99.0	%		100.0	%

	Past Due
December 31, 2014	30 - 59 days			60 - 89 days			90 days and over			Total			Current			Total
Commercial and industrial	$	52		$	241		$	4,060		$	4,353		$	173,460		$	177,813
Commercial real estate		-			-			6,556			6,556			553,968			560,524
Multifamily		-			-			-			-			309,666			309,666
Mixed use commercial		-			-			-			-			34,806			34,806
Real estate construction		-			-			-			-			26,206			26,206
Residential mortgages		822			-			2,020			2,842			184,986			187,828
Home equity		-			112			303			415			50,567			50,982
Consumer		59			77			42			178			7,424			7,602
Total	$	933		$	430		$	12,981		$	14,344		$	1,341,083		$	1,355,427
% of Total Loans		0.1	%		0.0	%		1.0	%		1.1	%		98.9	%		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 in this category possess potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position at some future date. Special Mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. 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.

The Bank annually reviews the ratings on all loans greater than $500 thousand. Semi-annually, the Bank engages an independent third-party to review a significant portion of loans within the commercial and industrial, commercial real estate and real estate construction loan classes. Management uses the results of these reviews as part of its ongoing review process.

The following presents the Company’s loan portfolio credit risk profile by internally assigned grade disaggregated by class of loan at March 31, 2015 and December 31, 2014 (in thousands).

	March 31, 2015												December 31, 2014
	Grade												Grade
	Pass			Special mention			Substandard			Total			Pass			Special mention			Substandard			Total
Commercial and industrial	$	165,527		$	3,543		$	9,742		$	178,812		$	167,922		$	1,225		$	8,666		$	177,813
Commercial real estate		553,861			15,395			10,617			579,873			536,536			9,182			14,806			560,524
Multifamily		322,229			-			-			322,229			309,666			-			-			309,666
Mixed use commercial		35,313			-			20			35,333			34,806			-			-			34,806
Real estate construction		24,608			-			-			24,608			26,206			-			-			26,206
Residential mortgages		181,809			-			3,168			184,977			183,263			-			4,565			187,828
Home equity		48,021			-			1,419			49,440			49,569			-			1,413			50,982
Consumer		6,766			-			122			6,888			7,279			-			323			7,602
Total	$	1,338,134		$	18,938		$	25,088		$	1,382,160		$	1,315,247		$	10,407		$	29,773		$	1,355,427
% of Total		96.8	%		1.4	%		1.8	%		100.0	%		97.0	%		0.8	%		2.2	%		100.0	%

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EMPLOYEE BENEFITS

3 Months Ended

Mar. 31, 2015

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. On December 31, 2012, the Company’s retirement plan was frozen such that no additional pension benefits would accumulate. For the three months ended March 31, 2015 and 2014, the Company’s net periodic pension credit was $111 thousand and $91 thousand, respectively.

In December 2014, the Company made an optional contribution of $1 million for the plan year ended September 30, 2015. No minimum contribution was required. The Company does not presently expect to contribute to its pension plan in 2015.

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INCOME TAXES

3 Months Ended

Mar. 31, 2015

INCOME TAXES [Abstract]

INCOME TAXES

7. INCOME TAXES

The deferred tax assets and liabilities are netted and presented in a single amount which is included in deferred taxes in the accompanying consolidated statements of condition. The realization of deferred tax assets (“DTAs”) (net of a recorded valuation allowance) is largely dependent upon future taxable income, future reversals of existing taxable temporary differences and the ability to carry back losses to available tax years. In assessing the need for a valuation allowance, the Company considers positive and negative evidence, including taxable income in carryback years, scheduled reversals of deferred tax liabilities, expected future taxable income and tax planning strategies. At March 31, 2015 the Company had no remaining Federal net operating loss carryforwards and had net operating loss carryforwards of approximately $23.0 million for New York State (“NYS”) income tax purposes, which may be applied against future taxable income. The Company has a full valuation allowance of $1.0 million, tax effected, on the NYS net operating loss carryforward due to the Company’s significant tax-exempt investment income. The valuation allowance may be reversed to income in future periods to the extent that the related DTAs are realized or when the Company returns to consistent, taxable earnings in NYS. The NYS unused net operating loss carryforwards are expected to expire in varying amounts through the year 2032.

The Company recorded income tax expense of $1.2 million in the first quarter of 2015 resulting in an effective tax rate of 23.6% versus an income tax expense of $1.1 million and an effective tax rate of 23.0% in the comparable period a year ago. On March 31, 2014, the Governor of NYS signed legislation which includes major reforms to the state’s corporate income tax system.  In addition, the new budget law simplifies the code by setting forth a single apportionment factor.  The corporate tax rate will be lowered from 7.1% to 6.5% in 2016.  Furthermore, for community banks (all banks and thrifts with $8 billion or less in assets) there is a subtraction modification for a portion of interest earned on all residential and small business loans with a principal amount of up to $5 million made to New York borrowers. All banks in this category that had a REIT on April 1, 2014, and in the applicable tax year would instead get a deduction based on their REIT's dividends paid deduction. The Company had a qualifying REIT on April 1, 2014 and has less than $8 billion in assets. If a change in a tax law or rate occurs, any existing deferred tax liability or asset must be adjusted. The effect is reflected in operations in the period of the enactment of the change in the tax law or rate. As such, the Company made an adjustment to increase its DTAs resulting in a net income tax benefit of $462 thousand in the first quarter of 2014. Offsetting the net income tax benefit was a $454 thousand income tax expense related to an adjustment of the Company’s stock based compensation included in the DTA, primarily for stock options that had expired or been forfeited by former employees. The adjustment relates primarily to prior periods, but management has determined that it is not material, and as such, included it in the 2014 first quarter’s results.

The Company had unrecognized tax benefits of approximately $34 thousand for all periods presented.  There is no accrued interest relating to uncertain tax positions as of March 31, 2015.

The Company files income tax returns in the U.S. federal jurisdiction and in New York State. Federal returns are subject to audits by tax authorities beginning with the tax year 2013. New York State returns are subject to audits beginning with the 2011 tax year. It is not anticipated that the unrecognized tax benefits will significantly change over the next 12 months.

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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
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Proceeds from sales of securities available for sale and the associated realized securities gains and losses [Abstract]
Proceeds	$ 531	$ 0
Gross realized gains	26	0
Gross realized losses	0	0
Net realized gains	26	0
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 Fair Value	34,631		0
Less than 12 months Unrealized Losses	(175)		0
12 months or longer Fair Value	58,405		134,486
12 months or longer Unrealized Losses	(982)		(2,710)
Total Fair Value	93,036		134,486
Total Unrealized Losses	(1,157)		(2,710)
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 Fair Value	13,919		0
Less than 12 months Unrealized Losses	(60)		0
12 months or longer Fair Value	19,787		41,577
12 months or longer Unrealized Losses	(213)		(897)
Total Fair Value	33,706		41,577
Total Unrealized Losses	(273)		(897)
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 Fair Value	0		0
Less than 12 months Unrealized Losses	0		0
12 months or longer Fair Value	8,476		8,417
12 months or longer Unrealized Losses	(352)		(531)
Total Fair Value	8,476		8,417
Total Unrealized Losses	(352)		(531)
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 Fair Value	20,712		0
Less than 12 months Unrealized Losses	(115)		0
12 months or longer Fair Value	27,159		81,510
12 months or longer Unrealized Losses	(400)		(1,264)
Total Fair Value	47,871		81,510
Total Unrealized Losses	(515)		(1,264)
Corporate Bonds [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 Fair Value	0		0
Less than 12 months Unrealized Losses	0		0
12 months or longer Fair Value	2,983		2,982
12 months or longer Unrealized Losses	(17)		(18)
Total Fair Value	2,983		2,982
Total Unrealized Losses	$ (17)		$ (18)

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FAIR VALUE, Non-recurring Basis (Details) (Fair Value, Measurements, Nonrecurring [Member], USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Assets measured at fair value on a non-recurring basis [Abstract]
Impaired loans	$ 3,338	$ 3,333
Total	3,338	3,333
Significant Unobservable Inputs (Level 3) [Member]
Assets measured at fair value on a non-recurring basis [Abstract]
Impaired loans	3,338	3,333
Total	$ 3,338	$ 3,333

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FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2015

FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Earnings-Per-Share

Earnings Per Share - Basic earnings per share is computed based on the weighted average number of common shares and unvested restricted shares outstanding for each period. The Company’s unvested restricted shares are considered participating securities as they contain rights to non-forfeitable dividends and thus they are included in the basic earnings per share computation. Diluted earnings per share include the dilutive effect of additional potential common shares issuable under stock options. In the event a net loss is reported, restricted shares and stock options are excluded from earnings per share computations.

The reconciliation of basic and diluted weighted average number of common shares outstanding for the three months ended March 31, 2015 and 2014 follows.

	Three Months Ended March 31,
	2015		2014
Weighted average common shares outstanding		11,602,924		11,573,014
Weighted average unvested restricted shares		91,503		-
Weighted average shares for basic earnings per share		11,694,427		11,573,014
Additional diluted shares:
Stock options		68,672		58,448
Weighted average shares for diluted earnings per share		11,763,099		11,631,462

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 may 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 quarterly 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. 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. These classes are commercial and industrial, commercial real estate, multifamily, mixed use commercial, real estate construction, residential mortgages, home equity and consumer loans.

The allowance for loan losses consists of specific and general components, as well as an unallocated component. 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 or liquidation of collateral. Impaired loans that are collateral dependent are reviewed based on the fair market value of 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 estimated 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. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

Loans Held-For-Sale

Loans Held For Sale – Loans held for sale are carried at the lower of aggregate cost or fair value, based on observable inputs in the secondary market. 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 income.

Derivatives

Derivatives- Derivatives are contracts between counterparties that specify conditions under which settlements are to be made. The only derivatives held by the Company are swap contracts with the purchaser of its Visa Class B shares. The Company records its derivatives on the consolidated statements of condition at fair value. The Company’s derivatives do not qualify for hedge accounting. As a result, changes in fair value are recognized in earnings in the period in which they occur. (See also Note 3. Investment Securities contained herein.)

Recent Accounting Guidance

Recent Accounting Guidance – In January 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-01, Income Statement—Extraordinary and Unusual Items (Subtopic 225-20), “Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items,” as part of its initiative to reduce complexity in accounting standards (the Simplification Initiative). This ASU eliminates from U.S. GAAP the concept of extraordinary items. Eliminating the concept of extraordinary items will save time and reduce costs for preparers because they will not have to assess whether a particular event or transaction event is extraordinary (even if they ultimately would conclude it is not). This also alleviates uncertainty for preparers, auditors, and regulators because auditors and regulators no longer will need to evaluate whether a preparer treated an unusual and/or infrequent item appropriately. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. Management intends to adopt ASU 2015-01 on January 1, 2016 and does not believe that the adoption will have a material effect on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), “Revenue from Contracts with Customers,” which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of the ASU is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. The ASU defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The ASU is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting the ASU recognized at the date of adoption (which includes additional footnote disclosures). The Company has not yet determined the method by which it will adopt ASU 2014-09 in 2017 and does not believe that the adoption will have a material effect on the Company’s consolidated financial statements. On April 2, 2015, the FASB decided to propose a one-year delay of the effective date for the new revenue recognition standard. If the proposal is finalized, the revenue recognition standard would take effect in 2018 for calendar year-end public entities. The proposal is expected to be released soon with a 30 day comment period.

In January 2014, the FASB issued ASU 2014-04, Receivables—Troubled Debt Restructurings by Creditors (Topic 310), “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure,” to clarify when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The ASU requires interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. The Company’s adoption of ASU 2014-04 on January 1, 2015 did not have a material effect on the Company’s consolidated financial statements.

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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STOCK-BASED COMPENSATION (Tables)

3 Months Ended

Mar. 31, 2015

STOCK-BASED COMPENSATION [Abstract]

Summary of stock option activity

A summary of stock option activity follows:

	Number of Shares			Weighted-Average Exercise Price Per Share
Outstanding, January 1, 2015		251,100		$	16.33
Granted		-			-
Exercised		(1,000	)	$	18.18
Forfeited or expired		(10,000	)	$	22.84
Outstanding, March 31, 2015		240,100		$	16.06

Summary of options outstanding and exercisable

The following summarizes shares subject to purchase from stock options outstanding and exercisable as of March 31, 2015:

		Outstanding					Exercisable
Range of Exercise Prices		Shares		Weighted-Average  Remaining  Contractual Life	Weighted-Average Exercise Price		Shares		Weighted-Average  Remaining  Contractual Life	Weighted-Average Exercise Price
$	10.00 - $14.00		120,000	6.9 years	$	11.97		83,334	6.9 years	$	12.45
$	14.01 - $20.00		98,100	8.3 years	$	17.47		42,438	8.2 years	$	16.73
$	20.01 - $30.00		5,000	3.8 years	$	28.30		5,000	3.8 years	$	28.30
$	30.01 - $40.00		17,000	1.8 years	$	33.12		17,000	1.8 years	$	33.12
			240,100	7.0 years	$	16.06		147,772	6.6 years	$	16.59

Summary of restricted stock activity

A summary of restricted stock activity follows:

	Number of Shares			Weighted-Average Grant-Date Fair Value
Nonvested, January 1, 2015		72,350		$	22.51
Granted		51,562		$	22.76
Vested		-			-
Forfeited or expired		(4,975	)	$	22.52
Nonvested, March 31, 2015		118,937		$	22.62

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REGULATORY MATTERS (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Total Capital (to risk-weighted assets) [Abstract]
Actual capital ratios, Amount	$ 209,314	$ 201,476
Minimum for capital adequacy, Amount	122,866	121,608
Minimum to be Well Capitalized under prompt corrective action provisions, Amount	153,582	152,010
Total Capital (to risk-weighted assets) Ratios [Abstract]
Actual capital ratios, Ratio (in hundredths)	13.63%	13.25%
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	190,111	182,469
Minimum for capital adequacy, Amount	92,149	60,804
Minimum to be Well Capitalized under prompt corrective action provisions, Amount	122,866	91,206
Tier 1 Capital (to risk-weighted assets) Ratio [Abstract]
Actual capital ratios, ratio (in hundredths)	12.38%	12.00%
Minimum for capital adequacy, Ratio (in hundredths)	6.00%	4.00%
Minimum to be Well Capitalized under prompt corrective action provisions, Ratio (in hundredths)	8.00%	6.00%
Common Equity Tier 1 Capital (to risk-weighted assets) [Abstract]
Actual capital ratios, Amount	190,111
Minimum for capital adequacy, Amount	69,112
Minimum to be Well Capitalized under prompt corrective action provisions, Amount	99,829
Common Equity Tier 1 Capital (to risk-weighted assets) Ratios [Abstract]
Actual capital ratios, Ratio (in hundredths)	12.38%
Minimum for capital adequacy, Ratio (in hundredths)	4.50%
Minimum to be Well Capitalized under prompt corrective action provisions, Ratio (in hundredths)	6.50%
Tier 1 Capital (to average assets) [Abstract]
Actual capital ratios, Amount	190,111	182,469
Minimum for capital adequacy, Amount	75,915	73,312
Minimum to be Well Capitalized under prompt corrective action provisions, Amount	$ 94,894	$ 91,640
Tier 1 Capital (to average assets) Ratios [Abstract]
Actual capital ratios, ratio (in hundredths)	10.02%	9.96%
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)	10.02%	9.96%
Tier 1 Risk-based Capital Ratio (in hundredths)	12.38%	12.00%
Common Equity Tier 1 Risk-based Capital Ratio (in hundredths)	12.38%
Total Risk-based Capital Ratio (in hundredths)	13.63%	13.25%
Parent Company [Member]
Total Capital (to risk-weighted assets) Ratios [Abstract]
Actual capital ratios, Ratio (in hundredths)	13.77%	13.35%
Tier 1 Capital (to risk-weighted assets) Ratio [Abstract]
Actual capital ratios, ratio (in hundredths)	12.52%	12.10%
Common Equity Tier 1 Capital (to risk-weighted assets) Ratios [Abstract]
Actual capital ratios, Ratio (in hundredths)	12.52%
Tier 1 Capital (to average assets) Ratios [Abstract]
Actual capital ratios, ratio (in hundredths)	10.13%	10.04%
Tier 1 Leverage Capital ratio (in hundredths)	10.13%	10.04%
Tier 1 Risk-based Capital Ratio (in hundredths)	12.52%	12.10%
Common Equity Tier 1 Risk-based Capital Ratio (in hundredths)	12.52%
Total Risk-based Capital Ratio (in hundredths)	13.77%	13.35%

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LOANS, Summary of Non-Performing Assets (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Summary of non-performing assets [Abstract]
Non-accrual loans	$ 12,292	$ 12,981
Non-accrual loans held for sale	0	0
Loans 90 days past due and still accruing	0	0
OREO	0	0
Total non-performing assets	12,292	12,981
TDRs accruing interest	9,418	9,380
TDRs non-accruing	$ 9,323	$ 10,293

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) [Abstract]
Net income	$ 4,009	$ 3,720
Other comprehensive income, net of tax and reclassification adjustments:
Change in unrealized gain on securities available for sale arising during the period, net of tax of $703 and $2,681, respectively	1,075	4,700
Change in unrealized gain (loss) on securities transferred from available for sale to held to maturity, net of tax of $27 and ($920), respectively	41	(1,612)
Total other comprehensive income, net of tax	1,116	3,088
Total comprehensive income	$ 5,125	$ 6,808

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FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2015

FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES [Abstract]

FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

1. FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Suffolk Bancorp (the “Company”) was incorporated in 1985 as a bank holding company. The Company currently owns all of the outstanding capital stock of Suffolk County National Bank (the “Bank”). The Bank was organized under the national banking laws of the United States in 1890. The Bank formed Suffolk Greenway, Inc. (the “REIT”), 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. The unaudited interim condensed consolidated financial statements include the accounts of the Company and the Bank and its subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Unless the context otherwise requires, references herein to the Company include the Company and the Bank and subsidiaries on a consolidated basis.

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 statement of condition as of March 31, 2015, its condensed consolidated statements of income for the three months ended March 31, 2015 and 2014, its condensed consolidated statements of comprehensive income for the three months ended March 31, 2015 and 2014, its condensed consolidated statements of changes in stockholders’ equity for the three months ended March 31, 2015 and 2014 and its condensed consolidated statements of cash flows for the three months ended March 31, 2015 and 2014.

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 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. The results of operations for the three months ended March 31, 2015 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 2014 Annual Report on Form 10-K.

Earnings Per Share - Basic earnings per share is computed based on the weighted average number of common shares and unvested restricted shares outstanding for each period. The Company’s unvested restricted shares are considered participating securities as they contain rights to non-forfeitable dividends and thus they are included in the basic earnings per share computation. Diluted earnings per share include the dilutive effect of additional potential common shares issuable under stock options. In the event a net loss is reported, restricted shares and stock options are excluded from earnings per share computations.

The reconciliation of basic and diluted weighted average number of common shares outstanding for the three months ended March 31, 2015 and 2014 follows.

	Three Months Ended March 31,
	2015		2014
Weighted average common shares outstanding		11,602,924		11,573,014
Weighted average unvested restricted shares		91,503		-
Weighted average shares for basic earnings per share		11,694,427		11,573,014
Additional diluted shares:
Stock options		68,672		58,448
Weighted average shares for diluted earnings per share		11,763,099		11,631,462

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 may 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 quarterly 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. 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. These classes are commercial and industrial, commercial real estate, multifamily, mixed use commercial, real estate construction, residential mortgages, home equity and consumer loans.

The allowance for loan losses consists of specific and general components, as well as an unallocated component. 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 or liquidation of collateral. Impaired loans that are collateral dependent are reviewed based on the fair market value of 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 estimated 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. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

Loans Held For Sale – Loans held for sale are carried at the lower of aggregate cost or fair value, based on observable inputs in the secondary market. 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 income.

Derivatives- Derivatives are contracts between counterparties that specify conditions under which settlements are to be made. The only derivatives held by the Company are swap contracts with the purchaser of its Visa Class B shares. The Company records its derivatives on the consolidated statements of condition at fair value. The Company’s derivatives do not qualify for hedge accounting. As a result, changes in fair value are recognized in earnings in the period in which they occur. (See also Note 3. Investment Securities contained herein.)

Recent Accounting Guidance – In January 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-01, Income Statement—Extraordinary and Unusual Items (Subtopic 225-20), “Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items,” as part of its initiative to reduce complexity in accounting standards (the Simplification Initiative). This ASU eliminates from U.S. GAAP the concept of extraordinary items. Eliminating the concept of extraordinary items will save time and reduce costs for preparers because they will not have to assess whether a particular event or transaction event is extraordinary (even if they ultimately would conclude it is not). This also alleviates uncertainty for preparers, auditors, and regulators because auditors and regulators no longer will need to evaluate whether a preparer treated an unusual and/or infrequent item appropriately. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. Management intends to adopt ASU 2015-01 on January 1, 2016 and does not believe that the adoption will have a material effect on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), “Revenue from Contracts with Customers,” which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of the ASU is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. The ASU defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The ASU is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting the ASU recognized at the date of adoption (which includes additional footnote disclosures). The Company has not yet determined the method by which it will adopt ASU 2014-09 in 2017 and does not believe that the adoption will have a material effect on the Company’s consolidated financial statements. On April 2, 2015, the FASB decided to propose a one-year delay of the effective date for the new revenue recognition standard. If the proposal is finalized, the revenue recognition standard would take effect in 2018 for calendar year-end public entities. The proposal is expected to be released soon with a 30 day comment period.

In January 2014, the FASB issued ASU 2014-04, Receivables—Troubled Debt Restructurings by Creditors (Topic 310), “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure,” to clarify when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The ASU requires interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. The Company’s adoption of ASU 2014-04 on January 1, 2015 did not have a material effect on the Company’s consolidated financial statements.

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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REGULATORY MATTERS (Tables)

3 Months Ended

Mar. 31, 2015

REGULATORY MATTERS [Abstract]

The Bank's actual capital amounts and ratios

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

	Actual capital ratios					Minimum for capital adequacy					Minimum to be Well Capitalized under prompt corrective action provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
March 31, 2015
Total capital to risk-weighted assets	$	209,314		13.63	%	$	122,866		8.00	%	$	153,582		10.00	%
Tier 1 capital to risk-weighted assets		190,111		12.38	%		92,149		6.00	%		122,866		8.00	%
Common equity tier 1 capital to risk-weighted assets		190,111		12.38	%		69,112		4.50	%		99,829		6.50	%
Tier 1 capital to adjusted average assets (leverage)		190,111		10.02	%		75,915		4.00	%		94,894		5.00	%
December 31, 2014
Total capital to risk-weighted assets	$	201,476		13.25	%	$	121,608		8.00	%	$	152,010		10.00	%
Tier 1 capital to risk-weighted assets		182,469		12.00	%		60,804		4.00	%		91,206		6.00	%
Tier 1 capital to adjusted average assets (leverage)		182,469		9.96	%		73,312		4.00	%		91,640		5.00	%

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LOANS, Loans and Allowance for Loan Losses Impairment Evaluations (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014	Mar. 31, 2014	Dec. 31, 2013
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	$ 1,028	$ 1,005
Ending balance: collectively evaluated for impairment	18,297	18,195
Ending balance	19,325	19,200	17,737	17,263
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	21,785	22,415
Ending balance: collectively evaluated for impairment	1,360,375	1,333,012
Total loans	1,382,160	1,355,427
Commercial and Industrial [Member]
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	10	16
Ending balance: collectively evaluated for impairment	1,988	1,544
Ending balance	1,998	1,560	2,481	2,615
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	3,764	4,889
Ending balance: collectively evaluated for impairment	175,048	172,924
Total loans	178,812	177,813
Commercial Real Estate [Member]
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	7,352	6,777
Ending balance	7,352	6,777	7,208	6,572
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	10,302	10,214
Ending balance: collectively evaluated for impairment	569,571	550,310
Total loans	579,873	560,524
Multifamily [Member]
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	4,467	4,018
Ending balance	4,467	4,018	2,640	2,159
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	322,229	309,666
Total loans	322,229	309,666
Mixed Use Commercial [Member]
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	273	261
Ending balance	273	261	87	54
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	35,333	34,806
Total loans	35,333	34,806
Real Estate Construction [Member]
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	360	383
Ending balance	360	383	217	88
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	24,608	26,206
Total loans	24,608	26,206
Residential Mortgages [Member]
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	771	809
Ending balance: collectively evaluated for impairment	1,847	2,218
Ending balance	2,618	3,027	2,627	2,463
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	5,651	5,422
Ending balance: collectively evaluated for impairment	179,326	182,406
Total loans	184,977	187,828
Home Equity [Member]
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	159	92
Ending balance: collectively evaluated for impairment	569	617
Ending balance	728	709	718	745
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	1,670	1,567
Ending balance: collectively evaluated for impairment	47,770	49,415
Total loans	49,440	50,982
Consumer [Member]
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	88	88
Ending balance: collectively evaluated for impairment	67	78
Ending balance	155	166
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	398	323
Ending balance: collectively evaluated for impairment	6,490	7,279
Total loans	6,888	7,602
Unallocated [Member]
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	1,374	2,299
Ending balance	1,374	2,299	1,573	2,326
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	0	0
Total loans	$ 0	$ 0

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BORROWINGS

3 Months Ended

Mar. 31, 2015

BORROWINGS [Abstract]

BORROWINGS

11. BORROWINGS

The following summarizes borrowed funds at March 31, 2015 and December 31, 2014 (dollars in thousands):

March 31, 2015	Federal Home Loan Bank Borrowings			Federal Funds Purchased			Total
Daily average outstanding	$	124,111		$	-		$	124,111
Total interest cost		108			-			108
Average interest rate paid		0.35	%		-	%		0.35	%
Maximum amount outstanding at any month-end	$	155,000		$	-		$	155,000
March 31 balance		90,000			-			90,000
Weighted-average interest rate on balances outstanding		0.34	%		-	%		0.34	%

December 31, 2014	Federal Home Loan Bank Borrowings			Federal Funds Purchased			Total
Daily average outstanding	$	13,051		$	8		$	13,059
Total interest cost		48			-			48
Average interest rate paid		0.37	%		0.46	%		0.37	%
Maximum amount outstanding at any month-end	$	130,000		$	-		$	130,000
December 31 balance		130,000			-			130,000
Weighted-average interest rate on balances outstanding		0.32	%		-	%		0.32	%

Assets pledged as collateral to the Federal Home Loan Bank (“FHLB”) at March 31, 2015 and December 31, 2014 totaled $567 million and $505 million, respectively, consisting of eligible loans and investment securities as determined under FHLB borrowing guidelines. The Company had $90 million and $130 million in FHLB borrowings at March 31, 2015 and December 31, 2014, respectively.