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, 2016

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. 001-37658

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 18, 2016, there were 11,861,255 shares of registrant’s Common Stock outstanding.

SUFFOLK BANCORP

Form 10-Q

For the Quarterly Period Ended March 31, 2016

Table of Contents

		Page
	PART I
Item 1.	Financial Statements
	Condensed Consolidated Statements of Condition (Unaudited) as of March 31, 2016 and December 31, 2015	2
	Condensed Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 2016 and 2015	3
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2016 and 2015	4
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, 2016 and 2015	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2016 and 2015	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	41
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	43
Item 3.	Defaults upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	43
	Signatures	44

1

PART I

ITEM 1. – FINANCIAL STATEMENTS

SUFFOLK BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)

March 31, 2016 and December 31, 2015

(dollars in thousands, except per share data)

	March 31, 2016			December 31, 2015
ASSETS
Cash and cash equivalents
Cash and non-interest-bearing deposits due from banks	$	86,004		$	75,272
Interest-bearing deposits due from banks		31,182			22,814
Total cash and cash equivalents		117,186			98,086
Federal Reserve and Federal Home Loan Bank stock and other investments		10,531			10,756
Investment securities:
Available for sale, at fair value		249,263			247,099
Held to maturity (fair value of $49,620 and $63,272, respectively)		47,141			61,309
Total investment securities		296,404			308,408
Loans		1,748,072			1,666,447
Allowance for loan losses		20,930			20,685
Net loans		1,727,142			1,645,762
Loans held for sale		573			1,666
Premises and equipment, net		23,395			23,240
Bank-owned life insurance		52,729			52,383
Deferred tax assets, net		14,050			15,845
Accrued interest and loan fees receivable		6,570			5,859
Goodwill and other intangibles		2,834			2,864
Other real estate owned ("OREO")		650			-
Other assets		4,322			3,723
TOTAL ASSETS	$	2,256,386		$	2,168,592
LIABILITIES & STOCKHOLDERS' EQUITY
Demand deposits	$	790,678		$	787,944
Savings, N.O.W. and money market deposits		849,850			768,036
Subtotal core deposits		1,640,528			1,555,980
Time deposits		229,841			224,643
Total deposits		1,870,369			1,780,623
Borrowings		160,000			165,000
Unfunded pension liability		6,416			6,428
Capital leases		4,365			4,395
Other liabilities		11,519			14,888
TOTAL LIABILITIES		2,052,669			1,971,334
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock (par value $2.50; 15,000,000 shares authorized; issued 14,019,302 and 13,966,292, respectively; outstanding 11,853,564 and 11,800,554, respectively)		35,048			34,916
Surplus		46,997			46,239
Retained earnings		133,749			130,093
Treasury stock at par (2,165,738 shares)		(5,414	)		(5,414	)
Accumulated other comprehensive loss, net of tax		(6,663	)		(8,576	)
TOTAL STOCKHOLDERS' EQUITY		203,717			197,258
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	2,256,386		$	2,168,592

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, 2016 and 2015

(dollars in thousands, except per share data)

	Three Months Ended March 31,
	2016		2015
INTEREST INCOME
Loans and loan fees	$	17,222	$	14,569
U.S. Government agency obligations		418		541
Obligations of states and political subdivisions		994		1,335
Collateralized mortgage obligations		79		182
Mortgage-backed securities		464		445
Corporate bonds		146		38
Federal funds sold, securities purchased under agreements to resell and interest-bearing deposits due from banks		29		23
Dividends		75		60
Total interest income		19,427		17,193
INTEREST EXPENSE
Savings, N.O.W. and money market deposits		513		274
Time deposits		348		294
Borrowings		242		108
Total interest expense		1,103		676
Net interest income		18,324		16,517
Provision for loan losses		250		250
Net interest income after provision for loan losses		18,074		16,267
NON-INTEREST INCOME
Service charges on deposit accounts		776		747
Other service charges, commissions and fees		611		593
Net gain on sale of securities available for sale		6		26
Net gain on sale of portfolio loans		-		198
Net gain on sale of mortgage loans originated for sale		74		144
Income from bank-owned life insurance		346		309
Other operating income		79		74
Total non-interest income		1,892		2,091
OPERATING EXPENSES
Employee compensation and benefits		8,666		8,606
Occupancy expense		1,442		1,462
Equipment expense		386		385
Consulting and professional services		483		338
FDIC assessment		293		290
Data processing		179		570
Other operating expenses		1,703		1,457
Total operating expenses		13,152		13,108
Income before income tax expense		6,814		5,250
Income tax expense		1,976		1,241
NET INCOME	$	4,838	$	4,009
EARNINGS PER COMMON SHARE - BASIC	$	0.41	$	0.34
EARNINGS PER COMMON SHARE - DILUTED	$	0.41	$	0.34
WEIGHTED AVERAGE COMMON SHARES - BASIC		11,829,195		11,694,427
WEIGHTED AVERAGE COMMON SHARES - DILUTED		11,900,808		11,763,099

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, 2016 and 2015

(in thousands)

	Three Months Ended March 31,
	2016		2015
Net income	$	4,838	$	4,009
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 $1,128 and $703, respectively		1,608		1,075
Change in unrealized gain on securities transferred from available for sale to held to maturity, net of tax of $183 and $27, respectively		305		41
Total other comprehensive income, net of tax		1,913		1,116
Total comprehensive income	$	6,751	$	5,125

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, 2016 and 2015

(dollars in thousands, except per share data)

	Three Months Ended March 31,
	2016			2015
Common stock
Balance, January 1	$	34,916		$	34,591
Dividend reinvestment (25,337 and 7,295 shares issued, respectively)		63			18
Stock options exercised (1,000 shares issued in 2015)		-			3
Stock-based compensation		69			116
Ending balance		35,048			34,728
Surplus
Balance, January 1		46,239			44,230
Dividend reinvestment		603			143
Stock options exercised		-			16
Stock-based compensation		155			106
Ending balance		46,997			44,495
Retained earnings
Balance, January 1		130,093			116,169
Net income		4,838			4,009
Cash dividends on common stock ($0.10 and $0.06 per share, respectively)		(1,182	)		(700	)
Ending balance		133,749			119,478
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		(8,576	)		(6,843	)
Other comprehensive income		1,913			1,116
Ending balance		(6,663	)		(5,727	)
Total stockholders' equity	$	203,717		$	187,560

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, 2016 and 2015

(in thousands)

	Three Months Ended March 31,
	2016			2015
NET INCOME	$	4,838		$	4,009
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Provision for loan losses		250			250
Depreciation and amortization		554			565
Stock-based compensation - net		224			222
Net amortization of premiums		283			297
Originations of mortgage loans held for sale		(8,464	)		(9,314	)
Proceeds from sale of mortgage loans originated for sale		9,632			9,281
Gain on sale of mortgage loans originated for sale		(74	)		(144	)
Gain on sale of portfolio loans		-			(198	)
Decrease (increase) in other intangibles		30			(52	)
Deferred tax expense		483			99
Increase in accrued interest and loan fees receivable		(711	)		(806	)
(Increase) decrease in other assets		(598	)		708
Adjustment to unfunded pension liability		(12	)		(111	)
Decrease in other liabilities		(3,368	)		(3,626	)
Income from bank-owned life insurance		(346	)		(309	)
Net gain on sale of securities available for sale		(6	)		(26	)
Net cash provided by operating activities		2,715			845
CASH FLOWS FROM INVESTING ACTIVITIES
Principal payments on investment securities - available for sale		3,513			1,413
Proceeds from sale of investment securities - available for sale		-			531
Maturities and calls of investment securities - available for sale		9,200			6,705
Purchases of investment securities - available for sale		(12,388	)		-
Maturities and calls of investment securities - held to maturity		14,625			117
Decrease in Federal Reserve and Federal Home
Loan Bank stock and other investments		225			1,800
Proceeds from sale of portfolio loans		-			23,986
Loan originations - net		(82,281	)		(26,810	)
Purchases of premises and equipment - net		(709	)		(143	)
Net cash (used in) provided by investing activities		(67,815	)		7,599
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts		89,746			35,612
Net decrease in short-term borrowings		(5,000	)		(40,000	)
Proceeds from stock options exercised		-			19
Cash dividends paid on common stock		(1,182	)		(700	)
Proceeds from shares issued under the dividend reinvestment plan		666			161
Decrease  in capital lease payable		(30	)		(28	)
Net cash provided by (used in) financing activities		84,200			(4,936	)
NET INCREASE IN CASH AND CASH EQUIVALENTS		19,100			3,508
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		98,086			55,516
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	117,186		$	59,024
SUPPLEMENTAL DATA:
Interest paid	$	1,105		$	681
Income taxes paid	$	828		$	340
Loans transferred to OREO	$	650		$	-

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 the Company’s condensed consolidated statement of condition as of March 31, 2016, its condensed consolidated statements of income for the three months ended March 31, 2016 and 2015, its condensed consolidated statements of comprehensive income for the three months ended March 31, 2016 and 2015, its condensed consolidated statements of changes in stockholders’ equity for the three months ended March 31, 2016 and 2015 and its condensed consolidated statements of cash flows for the three months ended March 31, 2016 and 2015.

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, 2016 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 2015 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, 2016 and 2015 follows.

	Three Months Ended March 31,
	2016		2015
Weighted average common shares outstanding		11,714,826		11,602,924
Weighted average unvested restricted shares		114,369		91,503
Weighted average shares for basic earnings per share		11,829,195		11,694,427
Additional diluted shares:
Stock options		71,613		68,672
Weighted average shares for diluted earnings per share		11,900,808		11,763,099

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. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. 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, multifamily, mixed use commercial, real estate construction and residential mortgages 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 include consideration of the following: levels and trends in various risk rating categories; 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. 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.

8

Other Real Estate Owned (“OREO”) - Property acquired through foreclosure, or OREO, is initially stated at the lower of cost or fair value less estimated selling costs. Losses arising at the time of the acquisition of property are charged against the allowance for loan losses. Any additional write-downs to the carrying value of these assets that may be required, as well as the cost of maintaining and operating these foreclosed properties, are charged to expense. The Company held OREO amounting to $650 thousand at March 31, 2016 resulting from the addition of one residential property during the first quarter of 2016.

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 March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Compensation—Stock Compensation (Topic 718), “Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 introduces targeted amendments intended to simplify the accounting for stock compensation. Specifically, the ASU requires all excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) to be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity also should recognize excess tax benefits, and assess the need for a valuation allowance, regardless of whether the benefit reduces taxes payable in the current period. The ASU also requires excess tax benefits to be classified along with other income tax cash flows as an operating activity in the statement of cash flows. In addition, the ASU elevates the statutory tax withholding threshold to qualify for equity classification up to the maximum statutory tax rates in the applicable jurisdiction(s). The ASU also clarifies that cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity. The ASU provides an optional accounting policy election (with limited exceptions), to be applied on an entity-wide basis, to either estimate the number of awards that are expected to vest (consistent with existing U.S. GAAP) or account for forfeitures when they occur. The amendments are effective for public business entities for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the impact of the pending adoption of the ASU on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The ASU establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of the pending adoption of the ASU on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10), “Recognition and Measurement of Financial Assets and Financial Liabilities” which requires an entity to: (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in other comprehensive income the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price and; (v) assess a valuation allowance on deferred tax assets related to unrealized losses of available for sale debt securities in combination with other deferred tax assets. This ASU provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes and also requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. For public entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Generally, early adoption of the amendments in this ASU is not permitted. The Company believes that adoption in 2018 will not 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 FASB subsequently issued ASU 2016-08 which updates the new standard by clarifying the principal versus agent implementation guidance and ASU 2016-10 which clarifies identifying performance obligations and the licensing implementation guidance, but neither change the core principle of the new standard. The FASB also subsequently issued ASU 2015-14 to defer the effective date of the new standard by one year. As such, it now takes effect for public entities in fiscal years beginning after December 15, 2017, 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). Early adoption is permitted for any entity that chooses to adopt the new standard as of the original effective date. The Company has not yet determined the method by which it will adopt ASU 2014-09 in 2018 and does not believe that the adoption will have a material effect on the Company’s consolidated financial statements.

9

2. ACCUMULATED OTHER COMPREHENSIVE INCOME/LOSS (“AOCI”)

The changes in the Company’s AOCI by component, net of tax, for the three months ended March 31, 2016 and 2015 follow (in thousands).

	Three Months Ended March 31, 2016												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			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	$	1,436		$	(1,395	)	$	(8,617	)	$	(8,576	)	$	2,637		$	(1,805	)	$	(7,675	)	$	(6,843	)
Other comprehensive income before reclassifications		1,612			-			-			1,612			1,091			-			-			1,091
Amounts reclassified from AOCI		(4	)		305			-			301			(16	)		41			-			25
Net other comprehensive income		1,608			305			-			1,913			1,075			41			-			1,116
Ending balance	$	3,044		$	(1,090	)	$	(8,617	)	$	(6,663	)	$	3,712		$	(1,764	)	$	(7,675	)	$	(5,727	)

Reclassifications out of AOCI for the three months ended March 31, 2016 and 2015 follow (in thousands).

	Amount Reclassified from AOCI
	Three Months Ended March 31,						Affected Line Item in the Statement
Details about AOCI Components	2016			2015			Where Net Income is Presented
Unrealized gains and losses on available for sale securities	$	6		$	26		Net gain on sale of securities available for sale
Unrealized losses on securities transferred from available for sale to held to maturity		(488	)		(68	)	Interest income - U.S. Government agency obligations
Subtotal, pre-tax		(482	)		(42	)
Income tax effect		181			17		Income tax expense
Total, net of tax	$	(301	)	$	(25	)

3. INVESTMENT SECURITIES

At the time of purchase of a security, the Company designates the security as either available for sale, trading or held to maturity, depending upon investment objectives, liquidity needs and intent.

In 2014, investment securities with a fair value of $48 million and an 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, equal to the unrealized holding losses at the date of transfer, is being accreted to interest income over the remaining life of the security. The unrealized holding losses at the date of transfer remained in AOCI and are being amortized simultaneously against interest income. Those amounts 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, 2016 and December 31, 2015 were as follows (in thousands):

	March 31, 2016									December 31, 2015
	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	$	25,982	$	9	$	(19	)	$	25,972	$	28,977	$	2	$	(463	)	$	28,516
Obligations of states and political subdivisions		93,877		4,235		-			98,112		100,215		4,467		-			104,682
Collateralized mortgage obligations		19,398		93		(57	)		19,434		15,795		2		(248	)		15,549
Mortgage-backed securities		95,877		1,161		(83	)		96,955		93,719		39		(1,316	)		92,442
Corporate bonds		9,000		-		(210	)		8,790		6,000		-		(90	)		5,910
Total available for sale securities		244,134		5,498		(369	)		249,263		244,706		4,510		(2,117	)		247,099
Held to maturity:
U.S. Government agency securities		29,513		1,836		-			31,349		43,570		1,450		-			45,020
Obligations of states and political subdivisions		11,628		563		-			12,191		11,739		536		-			12,275
Corporate bonds		6,000		80		-			6,080		6,000		7		(30	)		5,977
Total held to maturity securities		47,141		2,479		-			49,620		61,309		1,993		(30	)		63,272
Total investment securities	$	291,275	$	7,977	$	(369	)	$	298,883	$	306,015	$	6,503	$	(2,147	)	$	310,371

At March 31, 2016 and December 31, 2015, investment securities carried at $251 million and $261 million, respectively, were pledged primarily 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, 2016 (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, 2016
	Amortized Cost		Fair Value
Securities available for sale:
Due in one year or less	$	21,600	$	21,838
Due from one to five years		134,975		139,088
Due from five to ten years		87,559		88,337
Total securities available for sale		244,134		249,263
Securities held to maturity:
Due in one year or less		836		843
Due from one to five years		4,191		4,405
Due from five to ten years		23,667		24,578
Due after ten years		18,447		19,794
Total securities held to maturity		47,141		49,620
Total investment securities	$	291,275	$	298,883

11

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

	Three Months Ended March 31,
	2016		2015
Proceeds	$	-	$	531
Gross realized gains	$	6	$	26
Gross realized losses		-		-
Net realized gains	$	6	$	26

Information pertaining to securities with unrealized losses at March 31, 2016 and December 31, 2015, 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, 2016	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Government agency securities	$	4,965	$	(19	)	$	-	$	-		$	4,965	$	(19	)
Collateralized mortgage obligations		-		-			8,286		(57	)		8,286		(57	)
Mortgage-backed securities		9,315		(20	)		13,727		(63	)		23,042		(83	)
Corporate bonds		5,790		(210	)		-		-			5,790		(210	)
Total	$	20,070	$	(249	)	$	22,013	$	(120	)	$	42,083	$	(369	)

	Less than 12 months					12 months or longer					Total
December 31, 2015	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Government agency securities	$	16,744	$	(233	)	$	9,770	$	(230	)	$	26,514	$	(463	)
Collateralized mortgage obligations		1,831		(4	)		8,200		(244	)		10,031		(248	)
Mortgage-backed securities		66,804		(884	)		17,936		(432	)		84,740		(1,316	)
Corporate bonds		8,880		(120	)		-		-			8,880		(120	)
Total	$	94,259	$	(1,241	)	$	35,906	$	(906	)	$	130,165	$	(2,147	)

All securities with unrealized losses for twelve months or longer at March 31, 2016 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 OTTI was present at March 31, 2016.

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.

In conjunction with the sale of Visa Class B shares in 2013, 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. The Company’s recorded liability representing the fair value of the derivative was $752 thousand at March 31, 2016 and December 31, 2015.

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, 2016 and 2015, $74 thousand and $70 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, 2016 and December 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, 2016 and December 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, 2016 and December 31, 2015, net loans disaggregated by class consisted of the following (in thousands):

	March 31, 2016			December 31, 2015
Commercial and industrial	$	195,321		$	189,769
Commercial real estate		718,934			696,787
Multifamily		480,678			426,549
Mixed use commercial		83,421			78,787
Real estate construction		37,373			37,233
Residential mortgages		181,649			186,313
Home equity		45,447			44,951
Consumer		5,249			6,058
Gross loans		1,748,072			1,666,447
Allowance for loan losses		(20,930	)		(20,685	)
Net loans at end of period	$	1,727,142		$	1,645,762

There were no loans in the process of foreclosure collateralized by residential real estate property at March 31, 2016.

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, 2016												Three Months Ended March 31, 2015
	Balance at  beginning of period		Charge- offs			Recoveries		(Credit) provision for loan losses			Balance at  end of period		Balance at beginning of period		Charge- offs			Recoveries		Provision (credit) for  loan losses			Balance at end of period
Commercial and industrial	$	1,875	$	-		$	45	$	(16	)	$	1,904	$	1,560	$	(492	)	$	343	$	587		$	1,998
Commercial real estate		7,019		-			10		261			7,290		6,777		-			7		568			7,352
Multifamily		4,688		-			-		835			5,523		4,018		-			-		449			4,467
Mixed use commercial		766		-			-		86			852		261		-			-		12			273
Real estate construction		386		-			-		2			388		383		-			-		(23	)		360
Residential mortgages		2,476		-			2		(268	)		2,210		3,027		-			11		(420	)		2,618
Home equity		639		(7	)		1		(56	)		577		709		-			2		17			728
Consumer		106		(58	)		2		47			97		166		(1	)		5		(15	)		155
Unallocated		2,730		-			-		(641	)		2,089		2,299		-			-		(925	)		1,374
Total	$	20,685	$	(65	)	$	60	$	250		$	20,930	$	19,200	$	(493	)	$	368	$	250		$	19,325

13

At March 31, 2016 and December 31, 2015, 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, 2016 and December 31, 2015 disaggregated by class and impairment methodology (in thousands).

	Allowance for Loan Losses						Loan Balances
March 31, 2016	Individually  evaluated for impairment		Collectively  evaluated for impairment		Ending balance		Individually  evaluated for  impairment		Collectively evaluated for impairment		Ending balance
Commercial and industrial	$	84	$	1,820	$	1,904	$	4,957	$	190,364	$	195,321
Commercial real estate		-		7,290		7,290		4,511		714,423		718,934
Multifamily		-		5,523		5,523		-		480,678		480,678
Mixed use commercial		-		852		852		-		83,421		83,421
Real estate construction		-		388		388		-		37,373		37,373
Residential mortgages		430		1,780		2,210		5,152		176,497		181,649
Home equity		143		434		577		1,645		43,802		45,447
Consumer		43		54		97		297		4,952		5,249
Unallocated		-		2,089		2,089		-		-		-
Total	$	700	$	20,230	$	20,930	$	16,562	$	1,731,510	$	1,748,072

	Allowance for Loan Losses						Loan Balances
December 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	$	-	$	1,875	$	1,875	$	2,872	$	186,897	$	189,769
Commercial real estate		-		7,019		7,019		4,334		692,453		696,787
Multifamily		-		4,688		4,688		-		426,549		426,549
Mixed use commercial		-		766		766		-		78,787		78,787
Real estate construction		-		386		386		-		37,233		37,233
Residential mortgages		559		1,917		2,476		5,817		180,496		186,313
Home equity		170		469		639		1,683		43,268		44,951
Consumer		48		58		106		379		5,679		6,058
Unallocated		-		2,730		2,730		-		-		-
Total	$	777	$	19,908	$	20,685	$	15,085	$	1,651,362	$	1,666,447

The following table presents the Company’s impaired loans disaggregated by class at March 31, 2016 and December 31, 2015 (in thousands).

	March 31, 2016						December 31, 2015
	Unpaid  Principal  Balance		Recorded Balance		Allowance Allocated		Unpaid Principal Balance		Recorded Balance		Allowance Allocated
With no allowance recorded:
Commercial and industrial	$	3,929	$	3,929	$	-	$	2,869	$	2,869	$	-
Commercial real estate		4,929		4,511		-		4,753		4,334		-
Residential mortgages		3,056		2,927		-		3,076		2,947		-
Home equity		1,300		1,300		-		1,233		1,233		-
Consumer		129		129		-		207		207		-
Subtotal		13,343		12,796		-		12,138		11,590		-
With an allowance recorded:
Commercial and industrial		1,028		1,028		84		3		3		-
Residential mortgages		2,225		2,225		430		2,870		2,870		559
Home equity		361		345		143		586		450		170
Consumer		168		168		43		172		172		48
Subtotal		3,782		3,766		700		3,631		3,495		777
Total	$	17,125	$	16,562	$	700	$	15,769	$	15,085	$	777

14

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, 2016 and 2015 (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,
	2016				2015
	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	$	2,875	$	18	$	4,551	$	33
Commercial real estate		4,319		35		10,208		50
Residential mortgages		5,693		48		5,411		38
Home equity		1,671		15		1,662		13
Consumer		338		4		383		3
Total	$	14,896	$	120	$	22,215	$	137

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 $494 thousand and $534 thousand of specific reserves to customers whose loan terms have been modified as TDRs as of March 31, 2016 and December 31, 2015, 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.

At March 31, 2016 and December 31, 2015, $45 thousand was committed to be advanced in connection with TDRs, 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, 2016 and December 31, 2015 are as follows (dollars in thousands):

	March 31, 2016				December 31, 2015
TDRs Outstanding	Number of  Loans		Outstanding Recorded  Balance		Number of Loans		Outstanding  Recorded  Balance
Commercial and industrial		16	$	988		17	$	1,116
Commercial real estate		5		4,080		5		4,131
Residential mortgages		22		4,625		22		4,653
Home equity		5		1,354		5		1,362
Consumer		8		296		8		301
Total		56	$	11,343		57	$	11,563

15

The following presents, disaggregated by class, information regarding TDRs executed during the three months ended March 31, 2016 and 2015 (dollars in thousands):

	Three Months Ended March 31,
	2016						2015
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
Residential mortgages		-		-		-		2		194		199
Total		-	$	-	$	-		3	$	206	$	211

There were no 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, 2016 and 2015.

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.

At March 31, 2016 and December 31, 2015, non-accrual loans disaggregated by class were as follows (dollars in thousands):

	March 31, 2016										December 31, 2015
	Non- accrual  loans		% of Total			Total Loans		% of Total Loans			Non- accrual loans		% of  Total			Total Loans		% of Total  Loans
Commercial and industrial	$	4,128		59.0	%	$	195,321		0.2	%	$	1,954		35.3	%	$	189,769		0.1	%
Commercial real estate		1,959		28.0			718,934		0.1			1,733		31.4			696,787		0.1
Multifamily		-		-			480,678		-			-		-			426,549		-
Mixed use commercial		-		-			83,421		-			-		-			78,787		-
Real estate construction		-		-			37,373		-			-		-			37,233		-
Residential mortgages		724		10.3			181,649		0.1			1,358		24.6			186,313		0.1
Home equity		186		2.7			45,447		-			406		7.3			44,951		-
Consumer		1		-			5,249		-			77		1.4			6,058		-
Total	$	6,998		100.0	%	$	1,748,072		0.4	%	$	5,528		100.0	%	$	1,666,447		0.3	%

Additional interest income of approximately $98 thousand and $180 thousand would have been recorded during the three months ended March 31, 2016 and 2015, respectively, if non-accrual loans had performed in accordance with their original terms.

At March 31, 2016 and December 31, 2015, past due loans disaggregated by class were as follows (in thousands).

	Past Due
March 31, 2016	30 - 59 days			60 - 89 days			90 days and over			Total			Current			Total
Commercial and industrial	$	6		$	40		$	4,128		$	4,174		$	191,147		$	195,321
Commercial real estate		-			222			1,959			2,181			716,753			718,934
Multifamily		-			-			-			-			480,678			480,678
Mixed use commercial		-			-			-			-			83,421			83,421
Real estate construction		-			-			-			-			37,373			37,373
Residential mortgages		588			174			724			1,486			180,163			181,649
Home equity		200			-			186			386			45,061			45,447
Consumer		3			-			1			4			5,245			5,249
Total	$	797		$	436		$	6,998		$	8,231		$	1,739,841		$	1,748,072
% of Total Loans		0.1	%		0.0	%		0.4	%		0.5	%		99.5	%		100.0	%

16

	Past Due
December 31, 2015	30 - 59 days			60 - 89 days			90 days and over			Total			Current			Total
Commercial and industrial	$	21		$	-		$	1,954		$	1,975		$	187,794		$	189,769
Commercial real estate		-			-			1,733			1,733			695,054			696,787
Multifamily		-			-			-			-			426,549			426,549
Mixed use commercial		-			-			-			-			78,787			78,787
Real estate construction		-			-			-			-			37,233			37,233
Residential mortgages		512			175			1,358			2,045			184,268			186,313
Home equity		336			-			406			742			44,209			44,951
Consumer		2			-			77			79			5,979			6,058
Total	$	871		$	175		$	5,528		$	6,574		$	1,659,873		$	1,666,447
% of Total Loans		0.1	%		0.0	%		0.3	%		0.4	%		99.6	%		100.0	%

The Company utilizes an eight-grade risk-rating system for loans. Loans in risk grades 1- 4 are considered pass loans. The Company’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 Company, 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 Company 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.

17

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 Company 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 Company annually reviews the ratings on all loans greater than $750 thousand. Annually, the Company engages an independent third-party to review a significant portion of loans within the commercial and industrial, commercial real estate, multifamily, mixed use commercial and real estate construction loan classes. Management uses the results of these reviews as part of its ongoing review process.

18

The following presents the Company’s loan portfolio credit risk profile by internally assigned grade disaggregated by class of loan at March 31, 2016 and December 31, 2015 (in thousands).

	March 31, 2016												December 31, 2015
	Grade												Grade
	Pass			Special mention			Substandard			Total			Pass			Special mention			Substandard			Total
Commercial and industrial	$	186,625		$	1,716		$	6,980		$	195,321		$	180,024		$	3,088		$	6,657		$	189,769
Commercial real estate		710,860			4,921			3,153			718,934			687,210			6,109			3,468			696,787
Multifamily		480,678			-			-			480,678			426,549			-			-			426,549
Mixed use commercial		83,421			-			-			83,421			78,779			-			8			78,787
Real estate construction		37,373			-			-			37,373			37,233			-			-			37,233
Residential mortgages		180,751			-			898			181,649			184,781			-			1,532			186,313
Home equity		45,261			-			186			45,447			44,545			-			406			44,951
Consumer		5,248			-			1			5,249			5,939			-			119			6,058
Total	$	1,730,217		$	6,637		$	11,218		$	1,748,072		$	1,645,060		$	9,197		$	12,190		$	1,666,447
% of Total		99.0	%		0.4	%		0.6	%		100.0	%		98.7	%		0.6	%		0.7	%		100.0	%

5. RETIREMENT PLAN

The Company’s retirement plan is noncontributory and covers substantially all eligible employees. The plan conforms to the provisions of the Employee Retirement Income Security Act of 1974, as amended, and the Pension Protection Act of 2006, which requires certain funding rules for defined benefit plans. The Company’s policy is to accrue for all pension costs and to fund the maximum amount allowable for tax purposes. Actuarial gains and losses that arise from changes in assumptions concerning future events are amortized over a period that reflects the long-term nature of pension expense used in estimating pension costs. Certain provisions of the Company’s retirement plan were amended in 2012. These amendments froze the plan such that no additional pension benefits would accumulate.

For the three months ended March 31, 2016 and 2015, the Company’s net periodic pension credit was $13 thousand and $111 thousand, respectively.

In December 2015, the Company made an optional contribution of $1 million for the plan year ended September 30, 2016. No minimum contribution was required. The Company does not presently expect to contribute to its retirement plan in 2016.

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.

No options have been granted since 2013. Options granted in 2013 and 2012 were exercisable commencing one year from the date of grant at a rate of one-third per year. Options granted prior to 2012 were generally 100% exercisable commencing one year from the date of grant. All options are exercisable for a period of ten years or less.

No options were exercised during the first three months of 2016. The total intrinsic value of options exercised during the first three months of 2015 was $6 thousand. The total cash received from the 2015 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.

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, 2016, there were 6,000 SARs outstanding related to options granted before 2011. The SARs had no intrinsic value at March 31, 2016. 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.

19

A summary of stock option activity follows:

	Number of Shares			Weighted-Average  Exercise Price Per Share
Outstanding, January 1, 2016		185,100		$	15.73
Granted		-			-
Exercised		-			-
Forfeited or expired		(3,000	)	$	34.95
Outstanding, March 31, 2016		182,100		$	15.41

The following summarizes shares subject to purchase from stock options outstanding and exercisable as of March 31, 2016:

		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		90,000	5.8 years	$	11.68		73,334	5.8 years	$	11.88
$	14.01 - $20.00		83,100	7.3 years	$	17.80		58,606	7.3 years	$	17.59
$	20.01 - $30.00		3,000	2.8 years	$	28.30		3,000	2.8 years	$	28.30
$	30.01 - $40.00		6,000	1.3 years	$	32.04		6,000	1.3 years	$	32.04
			182,100	6.3 years	$	15.41		140,940	6.2 years	$	15.46

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 2016 and 2015, the Company awarded 31,621 and 51,562 shares of restricted stock to certain key employees and directors. Generally, the restricted stock awards vest over a three-year period commencing one year from the date of grant at a rate of one-third per year. The fair value at grant date of the 15,682 restricted shares that vested during the first three months of 2016 was $357 thousand. Of the 15,682 vested shares, 3,898 were withheld to pay taxes due upon vesting. No restricted shares vested during the first three months of 2015. A summary of restricted stock activity follows:

	Number of Shares			Weighted-Average Grant-Date Fair Value
Unvested, January 1, 2016		108,073		$	22.94
Granted		31,621		$	25.13
Vested		(15,682	)	$	22.76
Forfeited or expired		(50	)	$	25.13
Unvested, March 31, 2016		123,962		$	23.52

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 $224 thousand and $222 thousand for the three months ended March 31, 2016 and 2015, respectively. The remaining unrecognized compensation cost of approximately $40 thousand and $2.1 million at March 31, 2016 related to stock options and restricted stock, respectively, will be expensed over the remaining weighted average vesting period of approximately 0.6 years and 1.9 years, respectively.

Under the 2009 Plan, a total of 500,000 shares of the Company’s common stock were reserved for issuance, of which 135,257 shares remain for possible issuance at March 31, 2016. 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, 2016, the Company had net operating loss carryforwards of approximately $10.6 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 $471 thousand, 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.

20

The Company had no unrecognized tax benefits at March 31, 2016 as compared to $34 thousand at 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. The Company’s Federal tax returns were audited for the tax years 2010 through 2013; there was no significant change in income taxes as a result of these audits.

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 business, results of operations and financial condition. 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).

The Office of the Comptroller of the Currency (“OCC”), the Company’s primary bank regulator, may also establish higher capital requirements than those set forth in its capital regulations. The Company expects the OCC to establish individual minimum capital ratios for the Bank that will require it to maintain a tier 1 leverage ratio of at least 9%, a tier 1 risk-based capital ratio of at least 11% and a total risk-based capital ratio of at least 12%. At March 31, 2016, the Bank satisfied the OCC’s regulatory capital requirements as well as these individual minimum capital ratios, although there is no guarantee that the Bank will be able to maintain compliance with these heightened capital ratios.

In July 2013, the 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. 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 its capital needs.

The final capital rules 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 capital buffer requirement is being phased in beginning January 1, 2016 at 0.625% per year until it becomes 2.50% in 2019 and thereafter. At March 31, 2016, the Company’s and the Bank’s capital buffers were in excess of both the current and fully phased-in requirements.

The Bank’s capital amounts (in thousands) and ratios are presented in the table that follows. The minimum amounts presented therein reference the minimums required by capital regulations and not the individual minimum capital ratios the Company expects the OCC to establish for the Bank.

21

	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, 2016
Total capital to risk-weighted assets	$	224,004		12.38	%	$	144,714		8.00	%	$	180,893		10.00	%
Tier 1 capital to risk-weighted assets		202,783		11.21	%		108,536		6.00	%		144,714		8.00	%
Common equity tier 1 capital to risk-weighted assets		202,783		11.21	%		81,402		4.50	%		117,580		6.50	%
Tier 1 capital to adjusted average assets (leverage)		202,783		9.30	%		87,228		4.00	%		109,036		5.00	%
December 31, 2015
Total capital to risk-weighted assets	$	219,562		12.66	%	$	138,716		8.00	%	$	173,395		10.00	%
Tier 1 capital to risk-weighted assets		198,587		11.45	%		104,037		6.00	%		138,716		8.00	%
Common equity tier 1 capital to risk-weighted assets		198,587		11.45	%		78,028		4.50	%		112,706		6.50	%
Tier 1 capital to adjusted average assets (leverage)		198,587		9.58	%		82,905		4.00	%		103,632		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 9.52%, 11.48%, 11.48% and 12.65%, respectively, at March 31, 2016. The Company’s tier 1 leverage, common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios were 9.77%, 11.68%, 11.68% and 12.89%, respectively, at December 31, 2015.

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.

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.

22

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

	Level in	March 31, 2016				December 31, 2015
	Fair Value Hierarchy	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets:
Cash and due from banks	Level 1	$	117,186	$	117,186	$	98,086	$	98,086
Federal Reserve and Federal Home Loan Bank stock and other investments	Level 2		10,531		10,531		10,756		10,756
Investment securities held to maturity	Level 2		47,141		49,620		61,309		63,272
Investment securities available for sale	Level 2		249,263		249,263		247,099		247,099
Loans held for sale	Level 2		573		573		1,666		1,666
Loans, net of allowance	Level 2, 3 (1)		1,727,142		1,724,439		1,645,762		1,628,169
Accrued interest and loan fees receivable	Level 2		6,570		6,570		5,859		5,859
Financial Liabilities:
Non-maturity deposits	Level 2		1,640,528		1,640,528		1,555,980		1,555,980
Time deposits	Level 2		229,841		229,829		224,643		224,408
Borrowings	Level 2		160,000		160,146		165,000		164,827
Accrued interest payable	Level 2		196		196		198		198
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 due to the short term nature of these instruments. Determining the fair value of Federal Reserve and Federal Home Loan Bank stock and other investments is not practicable due to restrictions placed on its transferability; thus, carrying amount is a reasonable estimate of fair value. 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 Company’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.

OREO properties are initially recorded at fair value, less estimated costs to sell when acquired, establishing a new cost basis. Adjustments to OREO are measured at fair value, less estimated costs to sell. Fair values are generally based on third party appraisals or realtor evaluations of the property. These appraisals and evaluations may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less estimated costs to sell, an impairment loss is recognized through a valuation allowance, and the property is reported as non-recurring Level 3. No valuation allowance was recorded for OREO at March 31, 2016.

23

In conjunction with the sale of Visa Class B shares in 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, 2016, 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, 2016		Fair Value  Measurements Using Significant Unobservable  Inputs (Level 3)
Impaired loans	$	3,066	$	3,066
OREO		650		650
Total	$	3,716	$	3,716

Assets:	December 31, 2015		Fair Value  Measurements Using  Significant Unobservable  Inputs (Level 3)
Impaired loans	$	2,715	$	2,715
Total	$	2,715	$	2,715

The Company had no liabilities measured at fair value on a non-recurring basis at March 31, 2016 and December 31, 2015.

24

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, 2016		December 31, 2015		Valuation Technique	Unobservable Inputs	Discount
Impaired loans:
Commercial and industrial	$	944	$	-	Advance rate against inventory and receivables	Discount to financial statement values	25% to 50%		(1)
Residential mortgages		1,795		2,311	Third party appraisal	Discount to appraised value		25%	(2)
Home equity		202		280	Third party appraisal	Discount to appraised value		25%	(2)
Consumer		125		124	Third party appraisal	Discount to appraised value		25%	(3)
Total	$	3,066	$	2,715
OREO	$	650	$	-	Third party appraisal	Estimated selling costs		N/A

(1) The Company makes adjustments 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.

(2) Of which estimated selling costs are approximately 9% - 15% of the total discount.

(3) Of which estimated selling costs are approximately 10% - 12% of the total discount.

The following presents fair value measurements on a recurring basis at March 31, 2016 and December 31, 2015 (in thousands):

			Fair Value Measurements Using
Assets:	March 31, 2016		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government agency securities	$	25,972	$	25,972	$	-
Obligations of states and political subdivisions		98,112		98,112		-
Collateralized mortgage obligations		19,434		19,434		-
Mortgage-backed securities		96,955		96,955		-
Corporate bonds		8,790		8,790		-
Total	$	249,263	$	249,263	$	-
Liabilities:
Derivatives	$	752	$	-	$	752
Total	$	752	$	-	$	752

25

			Fair Value Measurements Using
Assets:	December 31, 2015		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs  (Level 3)
U.S. Government agency securities	$	28,516	$	28,516	$	-
Obligations of states and political subdivisions		104,682		104,682		-
Collateralized mortgage obligations		15,549		15,549		-
Mortgage-backed securities		92,442		92,442		-
Corporate bonds		5,910		5,910		-
Total	$	247,099	$	247,099	$	-
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,
	2016		2015
	Liabilities Derivatives		Liabilities Derivatives
Beginning balance	$	752	$	752
Net change		-		-
Ending balance	$	752	$	752

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.

26

11. BORROWINGS

The following summarizes borrowed funds at March 31, 2016 and December 31, 2015 (dollars in thousands):

As of or for the Three Months Ended March 31, 2016	Federal Home Loan Bank Borrowings Short-Term			Federal Home Loan Bank Borrowings Long-Term			Federal Funds Purchased
Daily average outstanding	$	119,407		$	15,000		$	-
Total interest cost		176			66			-
Average interest rate paid		0.58	%		1.76	%		-	%
Maximum amount outstanding at any month-end	$	160,000		$	15,000		$	-
Ending balance		145,000			15,000			-
Weighted-average interest rate on balances outstanding		0.49	%		1.76	%		-	%

As of or for the Year Ended December 31, 2015	Federal Home Loan Bank Borrowings Short-Term			Federal Home Loan Bank Borrowings Long-Term			Federal Funds Purchased
Daily average outstanding	$	63,935		$	10,808		$	3
Total interest cost		252			190			-
Average interest rate paid		0.39	%		1.76	%		0.45	%
Maximum amount outstanding at any month-end	$	155,000		$	15,000		$	-
Ending balance		150,000			15,000			-
Weighted-average interest rateon balances outstanding		0.52	%		1.76	%		-	%

Assets pledged as collateral to the Federal Home Loan Bank (“FHLB”), consisting of eligible loans and investment securities, at March 31, 2016 and December 31, 2015 resulted in a maximum borrowing potential of $713 million and $746 million, respectively. The Company had $160 million and $165 million in FHLB borrowings at March 31, 2016 and December 31, 2015, 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 document 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, including the individual minimum capital ratios that we expect the OCC to establish for the Bank; the Bank’s temporary limitation on the growth of its CRE portfolio and the potentially adverse impact thereof on the Company’s overall business, financial condition and results of operation due to the importance of the Bank’s CRE business to the Company’s overall business, financial condition and results of operation; any failure by the Bank to comply with the individual minimum capital ratios (including as a result of increases to the Bank’s allowance for loan losses), which may result in  regulatory enforcement actions; the duration of the Bank’s limitation on the growth of its CRE portfolio, and the potentially adverse impact thereof on the Company’s overall business, financial condition and results of operation; the cost of compliance and significant amount of time required of management to comply with regulatory  requirements; results of changes in law, regulations or regulatory practices; 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; 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 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.

27

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 fully taxable equivalent (“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 27 branch offices in Nassau, Suffolk and Queens Counties, New York. The Bank’s 27 branches include business banking centers in Long Island City, Melville and Garden City. In order to expand the Company geographically into western Suffolk, Nassau and Queens Counties and to diversify the lending business of the Company, loan production offices were opened in recent years in Long Island City, Garden City and Melville. As part of the Company’s strategy to move westward, the loan production office and business banking center branch in Long Island City serves Queens and nearby Brooklyn.

The Bank’s primary market area includes Suffolk County, Nassau County and New York City. The Bank offers a full line of domestic commercial and retail banking services. 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.

One of the largest community banks headquartered on Long Island, the Company serves clients in its traditional markets on the east end of Long Island, western Suffolk County and in its newer markets of Nassau County and New York City. The Company considers its business to be highly competitive in its market area with numerous competitors for its core niche of small business and middle market clients, as well as retail clients ancillary to these commercial relationships. The Company competes with local, regional and national depository financial institutions, including commercial banks, savings banks, insurance companies, credit unions and money market funds, and other businesses with respect to its lending services and in attracting deposits. Although the New York metropolitan area has a high density of financial institutions, a number of which are significantly larger than the Company, the core deposit franchise the Company has built over its more than 125 years of doing business by focusing its deposit gathering efforts on low cost deposits is unique in the local marketplace and gives it a significant competitive advantage on cost of funds.

The Company’s current market area provides opportunity for growth in deposits and commercial lending. The Company believes that there is a significant number of small to mid-size businesses in its current market area that seek a locally-based commercial bank that can offer a broad array of financial products and services. Given the variety of financial products and services offered by the Company, its focus on client service, and its local management, the Company believes that it can well serve the growing needs of both new and existing clients in its current market area. In addition to serving the banking needs of the communities in its market area, the Company is also known, along with its employees, for its active community involvement.

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 borrowings which could include federal funds with correspondent banks, securities sold under agreements to repurchase and Federal Home Loan Bank (“FHLB”) short-term and long-term 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.

28

Over the past few months, the Company has become increasingly concerned with conditions in many of its local commercial real estate (“CRE”) markets, particularly those in the boroughs of New York City. The Company sees worrisome signs of markets that are becoming overheated and has also observed deterioration in underwriting standards elsewhere in the industry, which has often translated into borrower expectations for loan terms that the Company is not comfortable with. As it has consistently articulated, the Company will compete fiercely for good deals on price because of the significant cost of funds advantage it has over most of the industry. However, the Company will not compromise on credit quality. As a result of these concerns, the Company stopped accepting new applications for multifamily loans in the boroughs of New York City several weeks ago. In addition, the Company has taken recent steps to target future growth in non-CRE loans. For example, the Company has recently brought on several relationship managers with experience in commercial and industrial (“C&I”) lending, and has also enhanced its compliance and technology infrastructure in order to support a higher level of residential mortgage origination for its owned portfolio.

The CRE lending market is also an area which has attracted significant regulatory scrutiny. The OCC, the Company’s primary bank regulator, has publicly expressed broadly applicable concerns over the last year about overheated conditions in many CRE markets. In response, the Company has decided to temporarily pull back from the CRE lending markets and, as described above, target future growth in C&I lending and residential mortgage portfolios. The Company expects to be back in the CRE lending markets later this year and in the interim intends to implement enhanced risk management processes to ensure that it is equipped to monitor market developments as well as remain compliant with regulatory guidance. While this shift in focus could have a negative impact on the Company’s revenue and earnings growth, the Company believes it is prudent in the current environment. The Company also expects the OCC to establish individual minimum capital ratios for the Bank that will require it to maintain a tier 1 leverage ratio of at least 9%, a tier 1 risk-based capital ratio of at least 11% and a total risk-based capital ratio of at least 12%. At March 31, 2016, the Bank satisfied these capital ratios, although there is no guarantee that the Bank will be able to maintain compliance with these heightened capital ratios. The Company is also exploring other options to ensure that it remains compliant with these capital requirements, including possible sales of selected investment securities and multifamily loans.

Financial Performance Summary

As of or for the quarters ended March 31, 2016 and 2015

(dollars in thousands, except per share data)

	Quarters ended March 31,						Over/ (under)
	2016			2015			2015
Revenue (1)	$	20,216		$	18,608			8.6	%
Operating expenses	$	13,152		$	13,108			0.3	%
Provision for loan losses	$	250		$	250			0.0	%
Net income	$	4,838		$	4,009			20.7	%
Net income per common share - diluted	$	0.41		$	0.34			20.6	%
Return on average assets		0.89	%		0.85	%		4	bp
Return on average stockholders' equity		9.64	%		8.79	%		85	bp
Tier 1 leverage ratio		9.52	%		10.13	%		(61)	bp
Common equity tier 1 risk-based capital ratio		11.48	%		12.52	%		(104)	bp
Tier 1 risk-based capital ratio		11.48	%		12.52	%		(104)	bp
Total risk-based capital ratio		12.65	%		13.77	%		(112)	bp
Tangible common equity ratio (non-GAAP)		8.91	%		9.77	%		(86)	bp
Total stockholders' equity/total assets (2)		9.03	%		9.91	%		(88)	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, 2016, the Company, on a consolidated basis, had total assets of $2.3 billion, total deposits of $1.9 billion and total stockholders’ equity of $204 million. The Company recorded net income of $4.8 million, or $0.41 per diluted common share, for the first quarter of 2016, compared to $4.0 million, or $0.34 per diluted common share, for the same period in 2015. The 20.7% increase in first quarter 2016 earnings versus the comparable 2015 period resulted principally from a $1.8 million increase in net interest income.  Partially offsetting this improvement was a $199 thousand reduction in non-interest income, a $44 thousand increase in total operating expenses and a higher effective tax rate (29.0% versus 23.6%) in 2016 when compared to the first quarter of 2015. The provision for loan losses was $250 thousand in each period. Adjusting for the impact of net non-accrual interest received in each period and other real estate owned (“OREO”) expenses in 2016, core net income increased by 21.5% to $4.9 million in the first quarter of 2016 from $4.0 million in the comparable 2015 period. (See also Non-GAAP Disclosure contained herein.)

29

	Three Months Ended March 31,
(in thousands)	2016			2015
CORE NET INCOME:
Net income, as reported	$	4,838		$	4,009
Adjustments:
Net non-accrual interest adjustment		(51	)		(7	)
OREO-related expenses		90			-
Total adjustments, before income taxes		39			(7	)
Adjustment for reported effective income tax rate		11			(2	)
Total adjustments, after income taxes		28			(5	)
Core net income	$	4,866		$	4,004

The Company’s return on average assets and return on average common stockholders’ equity were 0.89% and 9.64%, respectively, in the first quarter of 2016 versus 0.85% and 8.79%, respectively, in the first quarter of 2015.

The Company continued its core growth strategy of protecting and enhancing its eastern Suffolk lending franchise while simultaneously expanding west. This strategy allowed the Company to continue 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. Thus far in 2016, the Company has experienced an $82 million or 4.9% increase in the total loan portfolio, from $1.666 billion at December 31, 2015 to $1.748 billion at March 31, 2016. Total loans at March 31, 2016 represented a 26.5% increase from the comparable 2015 date.

Credit quality continues to be strong in all categories. Total non-accrual loans at March 31, 2016 were $7.0 million, or 0.40% of total loans, compared to $5.5 million, or 0.33% of total loans at December 31, 2015 and $12.3 million, or 0.89% of total loans, in the comparable quarter a year ago. The first quarter 2016 increase in total non-accrual loans was attributable to management’s decision to place a single relationship on non-accrual status, notwithstanding the fact that the Company believes it is adequately collateralized and is working with a cooperative borrower who remains current on all payment obligations. All other key credit metrics remain solid and reflect the Company’s commitment to a strong and disciplined credit culture. Early delinquencies (30-89 days past due), which are managed aggressively as a harbinger of future credit issues, remained extremely low at $1.2 million, or 0.07% of total loans at March 31, 2016. Given the continuous improvement the Company has experienced in its credit profile, management believes the Company is well reserved. The allowance for loan losses at March 31, 2016 was $20.9 million, or 1.20% of total loans and 299% of total non-accrual loans.

Total core deposits, consisting of demand, N.O.W., savings and money market accounts of $1.6 billion at March 31, 2016, grew approximately $85 million during the quarter, enabling the Company to fund its quarterly loan production through core deposit growth. Total core deposits represented 88% of total deposits at March 31, 2016. Total deposits, including time deposits, were $1.9 billion at March 31, 2016, representing a 17.5% increase from the comparable quarter a year ago. In addition, at the end of the first quarter, 42% of the Company’s total deposits were non-interest bearing demand deposits, resulting in a cost of funds of 23 basis points and a core net interest margin of 3.80%. The Company’s cost of funds and resulting margin compared favorably to most of the industry in the first quarter of 2016.

The Company’s management continues to be vigilant in controlling operating expenses and improving efficiency, while also making investments that will generate both revenue increases and operating efficiencies over time. Total operating expenses in the first quarter of 2016 were $13.2 million, compared to $15.0 million in the fourth quarter of 2015. Excluding the $1.4 million one-time restructuring charge in connection with the core systems conversion recorded in the fourth quarter of 2015, linked quarter core operating expenses were $409 thousand  less than the $13.6 million incurred in that period and virtually flat to the $13.1 million incurred in the comparable quarter a year ago. This improvement in operating leverage translated into a reduction in the Company’s core operating efficiency ratio during the first quarter of 2016 to 61.5%, from 65.2% in the fourth quarter of 2015 and 66.4% in the comparable quarter a year ago. (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, a strategy which is now a core part of the Company’s culture.

30

	Three Months Ended March 31,
(in thousands)	2016			2015
Core operating expenses:
Total operating expenses	$	13,152		$	13,108
Adjust for OREO-related expenses		(90	)		-
Core operating expenses		13,062			13,108
Core non-interest income:
Total non-interest income		1,892			2,091
Adjustments		-			-
Core non-interest income		1,892			2,091
Adjust for tax-equivalent basis		226			202
Core FTE non-interest income		2,118			2,293
Core net interest income:
FTE net interest income		19,179			17,496
Net non-accrual interest adjustment		(51	)		(7	)
Core FTE net interest income		19,128			17,489
Core operating efficiency ratio:
Core operating expenses		13,062			13,108
Core FTE net interest income		19,128			17,489
Core FTE non-interest income		2,118			2,293
Adjust for net gain on sale of securities available for sale		(6	)		(26	)
Total FTE revenue		21,240			19,756
Core operating expenses/total FTE revenue		61.50	%		66.35	%

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 for Loan 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, multifamily, mixed use commercial, real estate construction and residential mortgages 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.

31

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 include consideration of the following: levels and trends in various risk rating categories; 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. 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.

Deferred Tax Assets and Liabilities – 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 $2.3 billion at March 31, 2016. When compared to December 31, 2015, total assets increased by $88 million. This change was primarily due to loan growth and an increase in total cash and cash equivalents of $82 million and $19 million, respectively, partially offset by a decrease in total investment securities of $12 million.

Total loans were $1.7 billion at March 31, 2016, an increase of $82 million from December 31, 2015. The increase in the loan portfolio was primarily due to growth of commercial real estate and multifamily loans of $22 million and $54 million, respectively, in the first three months of 2016.

Total investment securities were $296 million at March 31, 2016 and $308 million at December 31, 2015. The decrease largely reflected maturities and calls of municipal obligations and U.S. Government agency securities totaling $24 million, coupled with principal paydowns of collateralized mortgage obligations and mortgage-backed securities of U.S. Government-sponsored enterprises totaling $4 million during the first quarter of 2016. These decreases were partially offset by purchases of collateralized mortgage obligations and mortgage-backed securities of U.S. Government-sponsored enterprises and corporate bonds totaling $12 million during the same period. The available for sale securities portfolio had an unrealized pre-tax gain of $5.1 million at March 31, 2016 compared to a gain of $2.4 million at year-end 2015.

32

At March 31, 2016, total deposits were $1.9 billion, an increase of $90 million when compared to December 31, 2015. This increase was primarily due to higher balances of demand, N.O.W., savings and money market deposits of $3 million, $13 million, $11 million and $58 million, respectively. Additionally, time deposit balances increased $5 million over the same period. Core deposit balances, which consist of demand, savings, N.O.W. and money market deposits, represented 88% of total deposits at March 31, 2016 and 87% of total deposits at December 31, 2015. Demand deposit balances represented 42% and 44% of total deposits at March 31, 2016 and December 31, 2015, respectively. At March 31, 2016 and December 31, 2015, the Company had $160 million and $165 million, respectively, in borrowings used to fund the growth in the Company’s loan portfolio, including $15 million in five-year FHLB borrowings with a fixed rate of 1.76%.

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, such as fed funds sold, 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 securities available for sale and balances at the FRB, increased to $278 million at March 31, 2016 compared to $268 million at December 31, 2015. These liquid assets may include assets that have been pledged primarily against municipal deposits or 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, 2016, 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, 2016, total deposits were $1.9 billion, an increase of $90 million when compared to December 31, 2015. Of the $230 million in total time deposits at March 31, 2016, $201 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, 2016 and December 31, 2015, the Company had $160 million and $165 million, respectively, in borrowings used to fund the growth in the Company’s loan portfolio. For the three months ended March 31, 2016 and 2015, proceeds from sales and maturities of securities available for sale totaled $9 million and $7 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, 2016, the Company had net loan originations for portfolio of $82 million compared to $27 million for the same period in 2015. For the three months ended March 31, 2016, the Company purchased investment securities totaling $12 million. No such securities were purchased during the same period in 2015.

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, 2016, access to approximately $713 million in FHLB lines of credit for overnight or term borrowings with maturities of up to thirty years was available. At March 31, 2016, 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, 2016, $160 million in borrowings were outstanding with the FHLB. No borrowings were outstanding under lines of credit with correspondent banks.

33

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, 2016, the Bank had $2.0 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 $204 million at March 31, 2016 compared to $197 million at December 31, 2015. The increase in stockholders’ equity versus December 31, 2015 was primarily due to net income, net of dividends paid, recorded during 2016.

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 9.52%, 11.48%, 11.48% and 12.65%, respectively, at March 31, 2016, exceeding all regulatory requirements. The Bank’s tier 1 leverage, common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios were 9.30%, 11.21%, 11.21% and 12.38%, respectively, at March 31, 2016. Each of these ratios exceeds the regulatory guidelines for a well-capitalized institution, the highest regulatory capital category. Moreover, capital rules 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 capital buffer requirement is being phased in beginning January 1, 2016 at 0.625% per year until it becomes 2.50% in 2019 and thereafter. At March 31, 2016, the Company’s and the Bank’s capital buffers were in excess of both the current and fully phased-in requirements.

In addition, the Company expects the OCC, its primary bank regulator, to establish individual minimum capital ratios for the Bank, which requires the Bank to establish and maintain levels of capital greater than those generally required for a “well capitalized” institution, that will require it to maintain a tier 1 leverage ratio of at least 9%, a tier 1 risk-based capital ratio of at least 11% and a total risk-based capital ratio of at least 12%. At March 31, 2016, the Bank satisfied these capital ratios.

The Company did not repurchase any shares of its common stock during the first three months of 2016. 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 8.91% at March 31, 2016 compared to 8.98% at December 31, 2015 and 9.77% at March 31, 2015. 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, 2016 (in thousands). (See also Non-GAAP Disclosure contained herein.)

								Ratios
Total stockholders' equity	$	203,717		Total assets	$	2,256,386			9.03%	(1)
Less: intangible assets		(2,834	)	Less: intangible assets		(2,834	)
Tangible common equity	$	200,883		Tangible assets	$	2,253,552			8.91%	(2)

(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.

(2) TCE ratio.

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.

34

The Company’s Board of Directors declared a quarterly cash dividend of $0.10 per common share during the first three months of 2016. A quarterly dividend of $0.06 per common share was declared during the comparable 2015 period.

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, 2016 and December 31, 2015, commitments to originate loans and commitments under unused lines of credit for which the Bank is obligated amounted to approximately $159 million and $126 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, 2016 and December 31, 2015, letters of credit outstanding were approximately $14 million and $15 million, respectively.

Material Changes in Results of Operations – Comparison of the Quarters Ended March 31, 2016 and 2015 - The Company recorded net income of $4.8 million during the first quarter of 2016 versus $4.0 million in the comparable quarter a year ago. The 20.7% improvement in first quarter 2016 net income resulted from a $1.8 million increase in net interest income.  Partially offsetting this positive factor was a $199 thousand decrease in non-interest income, largely the result of a $198 thousand net gain on the sale of portfolio loans recorded in 2015, a $44 thousand increase in total operating expenses and an increase in the effective tax rate to 29.0% in 2016 from 23.6% a year ago.  A $250 thousand provision for loan losses was recorded in the first quarters of 2016 and 2015.

The $1.8 million or 10.9% improvement in first quarter 2016 net interest income resulted from a $247 million (13.9%) increase in average total interest-earning assets. Partially offsetting the earning asset growth was an 18 basis point decline in the Company’s net interest margin to 3.81% in 2016 from 3.99% in 2015. Adjusting for the impact of net non-accrual interest received in each period, the Company’s core net interest margin was 3.80% in the first quarter of 2016 versus 3.99% in the first quarter of 2015. (See also Non-GAAP Disclosure contained herein.)

	Three Months Ended March 31,
	2016			2015
Core net interest margin:
FTE net interest margin		3.81	%		3.99	%
Net non-accrual interest adjustment		(0.01	)		-
Core FTE net interest margin		3.80	%		3.99	%

The Company’s first quarter 2016 average total interest-earning asset yield was 4.03% versus 4.15% in the comparable 2015 quarterly period. The decrease in the interest-earning asset yield in 2016 resulted from a 13 basis point decline in the average loan yield to 4.18% in 2016, partially offset by an improvement in the interest-earning asset mix to 83% loans in 2016 from 78% in the comparable 2015 period. Adjusting for the impact of net non-accrual interest received in each period, the Company’s core net interest margin was 3.80% in the first quarter of 2016 versus 3.99% in the comparable 2015 period.  The Company’s average balance sheet mix continued to improve as average loans increased by $297 million (21.5%) versus first quarter 2015. The average securities portfolio decreased by $55 million to $304 million in the first quarter of 2016 versus the comparable 2015 period.  The average yield on the investment portfolio was 3.59% in the first quarter of 2016 versus 3.81% a year ago.

35

The Company’s average cost of total interest-bearing liabilities increased by ten basis points to 0.37% in the first quarter of 2016 versus 0.27% in the comparable 2015 quarter. The Company’s total cost of funds, among the lowest in the industry, increased to 0.23% in the first quarter of 2016 versus 0.16% a year ago. Average core deposits increased $244 million (18.0%) to $1.6 billion during the first quarter of 2016 versus the first quarter of 2015, with average demand deposits representing 42% of first quarter 2016 average total deposits. Total deposits increased by $279 million or 17.5% to $1.9 billion at March 31, 2016 versus March 31, 2015. Core deposit balances, which represented 88% of total deposits at March 31, 2016, grew by $272 million or 19.9% during the same period. Average borrowings increased $10 million (8.3%) during the first quarter of 2016 compared to 2015 and were used, in part, to fund the growth in the Company’s loan portfolio. Total borrowings at March 31, 2016 were $160 million versus $90 million at the comparable 2015 date.

NET INTEREST INCOME ANALYSIS

For the Three Months Ended March 31, 2016 and 2015

(unaudited, dollars in thousands)

	2016								2015
	Average  Balance		Interest			Average Yield/Cost			Average Balance		Interest			Average  Yield/Cost
Assets:
Interest-earning assets:
Investment securities (1)	$	304,337	$	2,715			3.59	%	$	359,413	$	3,378			3.81	%
Federal Reserve and Federal Home Loan Bank stock and other investments		9,379		75			3.22			8,335		60			2.92
Federal funds sold, securities purchased under agreements to resell and interest-bearing deposits due from banks		29,533		29			0.39			26,163		23			0.36
Loans and performing loans held for sale (2)		1,680,892		17,463			4.18			1,383,409		14,711			4.31
Total interest-earning assets		2,024,141	$	20,282			4.03	%		1,777,320	$	18,172			4.15	%
Non-interest-earning assets		163,900								128,083
Total assets	$	2,188,041							$	1,905,403
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings, N.O.W. and money market deposits	$	834,453	$	513			0.25	%	$	688,628	$	274			0.16	%
Time deposits		225,890		348			0.62			215,160		294			0.55
Total savings and time deposits		1,060,343		861			0.33			903,788		568			0.25
Borrowings		134,407		242			0.72			124,111		108			0.35
Total interest-bearing liabilities		1,194,750		1,103			0.37			1,027,899		676			0.27
Demand deposits		766,488								668,613
Other liabilities		25,048								23,949
Total liabilities		1,986,286								1,720,461
Stockholders' equity		201,755								184,942
Total liabilities and stockholders' equity	$	2,188,041							$	1,905,403
Total cost of funds							0.23	%							0.16	%
Net interest rate spread							3.66	%							3.88	%
Net interest income/margin				19,179			3.81	%				17,496			3.99	%
Less tax-equivalent basis adjustment				(855	)							(979	)
Net interest income			$	18,324							$	16,517

(1) Interest on securities includes the effects of tax-equivalent basis adjustments of $614 and $837 in 2016 and 2015, respectively.

(2) Interest on loans includes the effects of tax-equivalent basis adjustments of $241 and $142 in 2016 and 2015, respectively.

The Company recorded a provision for loan losses of $250 thousand in the first quarter of 2016 and 2015. The adequacy of the provision and the resulting allowance for loan losses, which was $20.9 million at March 31, 2016, 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.)

36

Non-interest income declined by $199 thousand in the first quarter of 2016 versus the comparable 2015 period. This reduction was principally due to reductions in net gain on the sale of portfolio loans (down $198 thousand) and net gain on sale of mortgage loans originated for sale (down $70 thousand). The net gain on the sale of portfolio loans in the first quarter of 2015 resulted from the sale of performing multifamily loans in that period. No portfolio loans were sold in 2016. Partially offsetting these declines were nominal increases in service charges on deposit accounts, other service charges, commissions and fees and income from bank-owned life insurance during the first quarter of 2016.

Non-Interest Income

For the quarters ended March 31, 2016 and 2015

(dollars in thousands)

	Quarters ended March 31,				Over/ (under)
	2016		2015		2015
Service charges on deposit accounts	$	776	$	747		3.9	%
Other service charges, commissions and fees		611		593		3.0
Net gain on sale of securities available for sale		6		26		(76.9	)
Net gain on sale of portfolio loans		-		198		(100.0	)
Net gain on sale of mortgage loans originated for sale		74		144		(48.6	)
Income from bank-owned life insurance		346		309		12.0
Other operating income		79		74		6.8
Total non-interest income	$	1,892	$	2,091		(9.5)	%

Total operating expenses increased by $44 thousand or 0.3% in the first quarter of 2016 versus 2015 principally the result of growth in other operating expenses of $246 thousand, consulting and professional services expense of $145 thousand and employee compensation and benefits expense of $60 thousand. Partially offsetting these increases was a reduction in 2016 data processing costs of $391 thousand versus the comparable 2015 period. The increase in consulting and professional services expense was largely due to a $113 increase in legal fees in 2016, while the increase in other operating expenses reflected $90 thousand in expenses associated with the transfer of a non-accrual loan to OREO during the first quarter of 2016. The improvement in data processing costs resulted from lower core systems expenses incurred in 2016 coupled with the impact of a $77 thousand one-time charge recorded in the first quarter of 2015.

The Company’s core operating efficiency ratio improved to 61.5% in the first quarter of 2016 from 66.4% 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.)

37

Operating Expenses

For the quarters ended March 31, 2016 and 2015

(dollars in thousands)

	Quarters ended March 31,				Over/  (under)
	2016		2015		2015
Employee compensation and benefits	$	8,666	$	8,606		0.7	%
Occupancy expense		1,442		1,462		(1.4	)
Equipment expense		386		385		0.3
Consulting and professional services		483		338		42.9
FDIC assessment		293		290		1.0
Data processing		179		570		(68.6	)
Other operating expenses		1,703		1,457		16.9
Total operating expenses	$	13,152	$	13,108		0.3	%

The Company recorded income tax expense of $2.0 million in the first quarter of 2016 resulting in an effective tax rate of 29.0% versus an income tax expense of $1.2 million and an effective tax rate of 23.6% in the comparable period a year ago. The increase in the 2016 effective tax rate resulted from growth in pre-tax income taxed at the 35% federal rate, coupled with a reduction in tax-exempt securities income versus the comparable 2015 period.

Asset Quality - Non-accrual loans totaled $7.0 million or 0.40% of loans outstanding at March 31, 2016 versus $5.5 million or 0.33% of loans outstanding at December 31, 2015 and $12.3 million or 0.89% of total loans outstanding at March 31, 2015. The allowance for loan losses as a percentage of total non-accrual loans amounted to 299%, 374% and 157% at March 31, 2016, December 31, 2015 and March 31, 2015, respectively. Total accruing loans delinquent 30 days or more amounted to $1.2 million or 0.07% of loans outstanding at March 31, 2016 compared to $1.0 million or 0.06% of loans outstanding at December 31, 2015 and $1.1 million or 0.08% of loans outstanding at March 31, 2015.

Total criticized and classified loans were $18 million at March 31, 2016 versus $21 million at December 31, 2015 and $44 million at March 31, 2015. Criticized loans are those loans that are not classified but require some degree of heightened monitoring. Classified loans were $11 million at March 31, 2016 as compared to $12 million at December 31, 2015 and $25 million at March 31, 2015. The allowance for loan losses as a percentage of total classified loans was 187%, 170% and 77%, respectively, at the same dates.

At March 31, 2016, the Company had $11 million in TDRs, primarily consisting of commercial and industrial loans, commercial real estate loans, residential mortgages and home equity loans totaling $1 million, $4 million, $5 million and $1 million, respectively. The Company had TDRs amounting to $12 million and $19 million at December 31, 2015 and March 31, 2015, respectively.

38

At March 31, 2016, the Company’s allowance for loan losses amounted to $20.9 million or 1.20% of period-end loans outstanding. The allowance as a percentage of loans outstanding was 1.24% at December 31, 2015 and 1.40% at March 31, 2015. The Company recorded net loan charge-offs of $5 thousand in the first quarter of 2016 versus net loan recoveries of $370 thousand in the fourth quarter of 2015 and net loan charge-offs of $125 thousand in the first quarter of 2015. As a percentage of average total loans outstanding, these net amounts represented, on an annualized basis, 0.00% for the first quarter of 2016, (0.09%) for the fourth quarter of 2015 and 0.04% for the first quarter of 2015.

The Company held OREO amounting to $650 thousand at March 31, 2016 resulting from the addition of one residential property during the first quarter. The Company held no OREO during the other reported periods.

The Company recorded a $250 thousand provision for loan losses in the first quarter of 2016 and 2015.

For the three months ended March 31, 2016, the ending balance of the Company’s allowance for loan losses increased by $245 thousand when compared to December 31, 2015. During the first quarter of 2016, the Company increased its allowance for loan losses allocated to commercial real estate (“CRE”) and multifamily loans by $271 thousand and $835 thousand, respectively, and decreased its allowance for loan losses allocated to residential mortgages by $266 thousand. At March 31, 2016 and December 31, 2015, the Company’s allowance for loan losses included an unallocated portion totaling $2.1 million and $2.7 million, respectively, representing 10.0% and 13.2%, respectively, of the Company’s total allowance for loan losses. The Company’s unallocated portion of the allowance for loan losses at March 31, 2016 decreased $641 thousand when compared to December 31, 2015, reflecting in part long-term improvement in overall asset quality trends.

The increases in the allowance for loan losses allocated to CRE and multifamily loans during the first quarter of 2016 largely reflected increases of $24 million and $54 million, respectively, in unimpaired pass rated CRE and multifamily loans. The decrease in the allowance for loan losses allocated to residential mortgages during the first quarter of 2016 was primarily due to a decrease of $4 million in unimpaired pass rated residential mortgages, coupled with a decrease of 0.05% in the average combined historical loss and environmental factors rates on such unimpaired pass rated 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 probable 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.

Management has determined that the current level of the allowance for loan losses,including the unallocated portion, 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, 2016 versus December 31, 2015 and March 31, 2015

(dollars in thousands)

NON-PERFORMING ASSETS BY TYPE:
	At
	3/31/2016			12/31/2015			3/31/2015
Non-accrual loans	$	6,998		$	5,528		$	12,292
Non-accrual loans held for sale		-			-			-
Loans 90 days or more past due and still accruing		-			-			-
OREO		650			-			-
Total non-performing assets	$	7,648		$	5,528		$	12,292
TDRs accruing interest	$	9,267		$	9,239		$	9,418
TDRs non-accruing	$	2,076		$	2,324		$	9,323
Gross loans outstanding	$	1,748,072		$	1,666,447		$	1,382,160
Total loans held for sale	$	573		$	1,666		$	2,836
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES:
	Quarter Ended
	3/31/2016			12/31/2015			3/31/2015
Beginning balance	$	20,685		$	20,315		$	19,200
Provision		250			-			250
Charge-offs		(66	)		(3	)		(493	)
Recoveries		61			373			368
Ending balance	$	20,930		$	20,685		$	19,325
KEY RATIOS:
	At
	3/31/2016			12/31/2015			3/31/2015
Allowance as a % of total loans (1)		1.20	%		1.24	%		1.40	%
Non-accrual loans as a % of total loans (1)		0.40	%		0.33	%		0.89	%
Non-performing assets as a % of total loans, loans held for sale and OREO		0.44	%		0.33	%		0.89	%
Allowance for loan losses as a % of non-accrual loans (1)		299	%		374	%		157	%
Allowance for loan losses as a % of non-accrual loans and loans 90 days or more past due and still accruing (1)		299	%		374	%		157	%

(1) Excludes loans held for sale.

40

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, 2016 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, 2015.

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, 2016, 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 2016 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, 2015, except as discussed below.

The Company’s results may be adversely affected if it suffers higher than expected losses on its loans or is required to increase its allowance for loan losses.

41

The Company assumes credit risk from the possibility that it will suffer losses because borrowers, guarantors and related parties fail to perform under the terms of their loans. Management tries to minimize and monitor this risk by adopting and implementing what management believes are effective underwriting and credit policies and procedures, including how the Company establishes and reviews the allowance for loan losses. The allowance for loan losses is determined by continuous analysis of the loan portfolio and the analytical process is regularly reviewed and adjustments may be made based on the assessments of internal and external influences on credit quality. Those policies and procedures may still not prevent unexpected losses that could adversely affect the Company’s results. Weak economic conditions could adversely impact the ability of borrowers to repay outstanding loans or the value of collateral securing those loans. In particular, the Company sees worrisome signs of certain commercial real estate markets becoming overheated, and a decline in property values could materially and adversely affect the value of the collateral securing the Company’s commercial real estate loans. In addition, deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans, changes in regulation and regulatory interpretation and other factors, both within and outside of the Company’s control, may require an increase in the allowance for loan losses.

The Company operates in a highly regulated environment and its operations and income may be affected adversely by changes in laws and regulations governing its operations. The Company may be unable to satisfy the individual minimum capital requirements imposed by the OCC, and lack of compliance may result in regulatory enforcement actions and adversely impact the Company’s business, financial condition or results of operations.

The Company is subject to extensive regulation and supervision by the Federal Reserve Board, the OCC and the FDIC. Such regulators govern the activities in which the Company may engage. These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the ability to impose restrictions on a bank’s operations, limit growth rates, reclassify assets, determine the adequacy of a bank’s allowance for loan losses and determine the level of deposit insurance premiums assessed. Any change in such regulation and oversight, whether in the form of regulatory policy, new regulations or legislation or additional deposit insurance premiums could materially and adversely impact on the Company’s business, financial condition or results of operations. Any new laws, rules and regulations could also make compliance more difficult or expensive or otherwise materially and adversely affect the Company’s business, financial condition or results of operations. Such changes could subject the Company to additional costs, limit the types of financial services and products the Company may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things.

As a result of its commercial real estate concentrations, the Company expects the OCC to establish individual minimum capital ratios for the Bank that will require it to maintain a tier 1 leverage ratio of at least 9%, a tier 1 risk-based capital ratio of at least 11% and a total risk-based capital ratio of at least 12%. There is no guarantee that the Bank will be able to maintain compliance with these heightened capital ratios. Any failure by the Bank to comply with these individual minimum capital ratios (including as a result of increases to the Bank’s allowance for loan losses), may result in regulatory enforcement actions and adversely impact the Company’s business, financial condition or results of operations.

The Company’s loan portfolio has a high concentration of commercial real estate loans (inclusive 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. The Company’s recently imposed limitation on the growth of its commercial real estate loan portfolio due to the Company’s concentrated position in such assets could materially and adversely affect the Company’s ability to generate interest income and the Company’s business, financial condition and results of operations.

At March 31, 2016, $1.3 billion, or 73% of the Company’s total gross loan portfolio, was comprised of commercial real estate (inclusive of multifamily and mixed use commercial loans). This type of lending is generally sensitive to regional and local economic conditions. Unlike larger national or regional banks that serve a broader and more diverse geographic region, the Company’s business depends significantly on general economic conditions in the New York metropolitan and Long Island markets, where the majority of the properties securing the multifamily and commercial real estate loans the Company originates, and the businesses of the customers to whom the Company makes its C&I loans, are located. Accordingly, the ability of borrowers to repay their loans, and the value of the collateral securing such loans, may be significantly affected by economic conditions in this region, including changes in the local real estate market, making loan loss levels difficult to predict and increasing the risk that the Company would incur material losses if borrowers default on their loans. A decline in general economic conditions could therefore have an adverse effect on the Company’s business, financial condition and results of operations. In addition, because multifamily and CRE loans represent the large majority of the Company’s loan portfolio, a decline in tenant occupancy or rents could adversely impact the ability of borrowers to repay their loans on a timely basis, which could have a negative impact on the Company’s net income, as well as the Company’s ability to maintain or increase the level of cash dividends it currently pays to its stockholders. While the Company seeks to minimize these risks through its underwriting policies, which generally require that such loans be qualified on the basis of the collateral property’s cash flows, appraised value and debt service coverage ratio, among other factors, there can be no assurance that the Company’s underwriting policies will protect it from credit-related losses or delinquencies.

42

Furthermore, over the past few months, the Company has become increasingly concerned with conditions in many of its local CRE markets, particularly those in the boroughs of New York City. The Company sees worrisome signs of markets that are becoming overheated. The CRE lending market is also an area which has attracted significant regulatory scrutiny. The OCC, the Company’s primary bank regulator, has publicly expressed broadly applicable concerns over the last year about overheated conditions in many CRE markets. The Company also expects the OCC to establish individual minimum capital ratios for the Bank as a result of its concentration of CRE loans. In response, the Company has decided to temporarily pull back from the CRE lending markets, which could have a material and adverse impact on the Company’s net income and the Company’s business, financial condition and results of operation.

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

43

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

Dated: May 3, 2016	/s/ Howard C. Bluver
	Howard C. Bluver
	President & Chief Executive Officer
	(principal executive officer)
Dated: May 3, 2016	/s/ Brian K. Finneran
	Brian K. Finneran
	Executive Vice President & Chief Financial Officer
	(principal financial and accounting officer)

44

EXHIBIT INDEX

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

EX-31.1

EXHIBIT 31.1

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

I, Howard C. Bluver, certify that:

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

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

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

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

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

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

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

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

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

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

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

Dated: May 3, 2016

/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.

Dated: May 3, 2016

/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, 2016 (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.

Dated: May 3, 2016

/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, 2016 (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.

Dated: May 3, 2016

/s/ Brian K. Finneran

Brian K. Finneran

Executive Vice President & Chief Financial Officer

(principal financial and accounting officer)

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2016	Apr. 18, 2016
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		11,861,255
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q1
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2016

XML

CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Cash and cash equivalents
Cash and non-interest-bearing deposits due from banks	$ 86,004	$ 75,272
Interest-bearing deposits due from banks	31,182	22,814
Total cash and cash equivalents	117,186	98,086
Federal Reserve and Federal Home Loan Bank stock and other investments	10,531	10,756
Investment securities:
Available for sale, at fair value	249,263	247,099
Held to maturity (fair value of $49,620 and $63,272, respectively)	47,141	61,309
Total investment securities	296,404	308,408
Loans	1,748,072	1,666,447
Allowance for loan losses	20,930	20,685
Net loans	1,727,142	1,645,762
Loans held for sale	573	1,666
Premises and equipment, net	23,395	23,240
Bank-owned life insurance	52,729	52,383
Deferred tax assets, net	14,050	15,845
Accrued interest and loan fees receivable	6,570	5,859
Goodwill and other intangibles	2,834	2,864
Other real estate owned ("OREO")	650	0
Other assets	4,322	3,723
TOTAL ASSETS	2,256,386	2,168,592
LIABILITIES & STOCKHOLDERS' EQUITY
Demand deposits	790,678	787,944
Savings, N.O.W. and money market deposits	849,850	768,036
Subtotal core deposits	1,640,528	1,555,980
Time deposits	229,841	224,643
Total deposits	1,870,369	1,780,623
Borrowings	160,000	165,000
Unfunded pension liability	6,416	6,428
Capital leases	4,365	4,395
Other liabilities	11,519	14,888
TOTAL LIABILITIES	$ 2,052,669	$ 1,971,334
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock (par value $2.50; 15,000,000 shares authorized; issued 14,019,302 and 13,966,292, respectively; outstanding 11,853,564 and 11,800,554, respectively)	$ 35,048	$ 34,916
Surplus	46,997	46,239
Retained earnings	133,749	130,093
Treasury stock at par (2,165,738 shares)	(5,414)	(5,414)
Accumulated other comprehensive loss, net of tax	(6,663)	(8,576)
TOTAL STOCKHOLDERS' EQUITY	203,717	197,258
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 2,256,386	$ 2,168,592

XML

CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED) (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Investment securities:
Held to maturity, fair value	$ 49,620	$ 63,272
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)	14,019,302	13,966,292
Common stock, shares outstanding (in shares)	11,853,564	11,800,554
Treasury stock, shares (in shares)	2,165,738	2,165,738

XML

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
INTEREST INCOME
Loans and loan fees	$ 17,222	$ 14,569
U.S. Government agency obligations	418	541
Obligations of states and political subdivisions	994	1,335
Collateralized mortgage obligations	79	182
Mortgage-backed securities	464	445
Corporate bonds	146	38
Federal funds sold, securities purchased under agreements to resell and interest-bearing deposits due from banks	29	23
Dividends	75	60
Total interest income	19,427	17,193
INTEREST EXPENSE
Savings, N.O.W. and money market deposits	513	274
Time deposits	348	294
Borrowings	242	108
Total interest expense	1,103	676
Net interest income	18,324	16,517
Provision for loan losses	250	250
Net interest income after provision for loan losses	18,074	16,267
NON-INTEREST INCOME
Service charges on deposit accounts	776	747
Other service charges, commissions and fees	611	593
Net gain on sale of securities available for sale	6	26
Net gain on sale of portfolio loans	0	198
Net gain on sale of mortgage loans originated for sale	74	144
Income from bank-owned life insurance	346	309
Other operating income	79	74
Total non-interest income	1,892	2,091
OPERATING EXPENSES
Employee compensation and benefits	8,666	8,606
Occupancy expense	1,442	1,462
Equipment expense	386	385
Consulting and professional services	483	338
FDIC assessment	293	290
Data processing	179	570
Other operating expenses	1,703	1,457
Total operating expenses	13,152	13,108
Income before income tax expense	6,814	5,250
Income tax expense	1,976	1,241
NET INCOME	$ 4,838	$ 4,009
EARNINGS PER COMMON SHARE - BASIC (in dollars per share)	$ 0.41	$ 0.34
EARNINGS PER COMMON SHARE - DILUTED (in dollars per share)	$ 0.41	$ 0.34
WEIGHTED AVERAGE COMMON SHARES - BASIC (in shares)	11,829,195	11,694,427
WEIGHTED AVERAGE COMMON SHARES - DILUTED (in shares)	11,900,808	11,763,099

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) [Abstract]
Net income	$ 4,838	$ 4,009
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 $1,128 and $703, respectively	1,608	1,075
Change in unrealized gain on securities transferred from available for sale to held to maturity, net of tax of $183 and $27, respectively	305	41
Total other comprehensive income, net of tax	1,913	1,116
Total comprehensive income	$ 6,751	$ 5,125

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) [Abstract]
Net unrealized holding gain on securities available for sale, tax	$ 1,128	$ 703
Change in unrealized gain on securities transferred, tax	$ 183	$ 27

XML

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, 2014	$ 34,591	$ 44,230	$ 116,169	$ (5,414)	$ (6,843)
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 dividends on common stock ($0.10 and $0.06 per share, respectively)			(700)
Balance at Mar. 31, 2015	34,728	44,495	119,478	(5,414)	(5,727)	187,560
Balance at Dec. 31, 2015	34,916	46,239	130,093	(5,414)	(8,576)	197,258
Net income			4,838			4,838
Dividend reinvestment	63	603
Stock options exercised	0	0
Stock-based compensation	69	155
Other comprehensive income					1,913	6,751
Cash dividends on common stock ($0.10 and $0.06 per share, respectively)			(1,182)
Balance at Mar. 31, 2016	$ 35,048	$ 46,997	$ 133,749	$ (5,414)	$ (6,663)	$ 203,717

XML

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (Parenthetical) - $ / shares	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) [Abstract]
Dividend reinvestment (in shares)	25,337	7,295
Stock options exercised (in shares)	0	(1,000)
Cash dividend on common stock (in dollars per share)	$ 0.10	$ 0.06

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) [Abstract]
NET INCOME	$ 4,838	$ 4,009
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Provision for loan losses	250	250
Depreciation and amortization	554	565
Stock-based compensation - net	224	222
Net amortization of premiums	283	297
Originations of mortgage loans held for sale	(8,464)	(9,314)
Proceeds from sale of mortgage loans originated for sale	9,632	9,281
Gain on sale of mortgage loans originated for sale	(74)	(144)
Gain on sale of portfolio loans	0	(198)
Decrease (increase) in other intangibles	30	(52)
Deferred tax expense	483	99
Increase in accrued interest and loan fees receivable	(711)	(806)
(Increase) decrease in other assets	(598)	708
Adjustment to unfunded pension liability	(12)	(111)
Decrease in other liabilities	(3,368)	(3,626)
Income from bank-owned life insurance	(346)	(309)
Net gain on sale of securities available for sale	(6)	(26)
Net cash provided by operating activities	2,715	845
CASH FLOWS FROM INVESTING ACTIVITIES
Principal payments on investment securities - available for sale	3,513	1,413
Proceeds from sale of investment securities - available for sale	0	531
Maturities and calls of investment securities - available for sale	9,200	6,705
Purchases of investment securities - available for sale	(12,388)	0
Maturities and calls of investment securities - held to maturity	14,625	117
Decrease in Federal Reserve and Federal Home Loan Bank stock and other investments	225	1,800
Proceeds from sale of portfolio loans	0	23,986
Loan originations - net	(82,281)	(26,810)
Purchases of premises and equipment - net	(709)	(143)
Net cash (used in) provided by investing activities	(67,815)	7,599
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts	89,746	35,612
Net decrease in short-term borrowings	(5,000)	(40,000)
Proceeds from stock options exercised	0	19
Cash dividends paid on common stock	(1,182)	(700)
Proceeds from shares issued under the dividend reinvestment plan	666	161
Decrease in capital lease payable	(30)	(28)
Net cash provided by (used in) financing activities	84,200	(4,936)
NET INCREASE IN CASH AND CASH EQUIVALENTS	19,100	3,508
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	98,086	55,516
CASH AND CASH EQUIVALENTS, END OF PERIOD	117,186	59,024
SUPPLEMENTAL DATA:
Interest paid	1,105	681
Income taxes paid	828	340
Loans transferred to OREO	$ 650	$ 0

XML

FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2016

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 the Company’s condensed consolidated statement of condition as of March 31, 2016, its condensed consolidated statements of income for the three months ended March 31, 2016 and 2015, its condensed consolidated statements of comprehensive income for the three months ended March 31, 2016 and 2015, its condensed consolidated statements of changes in stockholders’ equity for the three months ended March 31, 2016 and 2015 and its condensed consolidated statements of cash flows for the three months ended March 31, 2016 and 2015.

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, 2016 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 2015 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, 2016 and 2015 follows.

	Three Months Ended March 31,
	2016		2015
Weighted average common shares outstanding		11,714,826		11,602,924
Weighted average unvested restricted shares		114,369		91,503
Weighted average shares for basic earnings per share		11,829,195		11,694,427
Additional diluted shares:
Stock options		71,613		68,672
Weighted average shares for diluted earnings per share		11,900,808		11,763,099

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. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. 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, multifamily, mixed use commercial, real estate construction and residential mortgages 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 include consideration of the following: levels and trends in various risk rating categories; 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. 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.

Other Real Estate Owned (“OREO”) - Property acquired through foreclosure, or OREO, is initially stated at the lower of cost or fair value less estimated selling costs. Losses arising at the time of the acquisition of property are charged against the allowance for loan losses. Any additional write-downs to the carrying value of these assets that may be required, as well as the cost of maintaining and operating these foreclosed properties, are charged to expense. The Company held OREO amounting to $650 thousand at March 31, 2016 resulting from the addition of one residential property during the first quarter of 2016.

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 March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Compensation—Stock Compensation (Topic 718), “Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 introduces targeted amendments intended to simplify the accounting for stock compensation. Specifically, the ASU requires all excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) to be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity also should recognize excess tax benefits, and assess the need for a valuation allowance, regardless of whether the benefit reduces taxes payable in the current period. The ASU also requires excess tax benefits to be classified along with other income tax cash flows as an operating activity in the statement of cash flows. In addition, the ASU elevates the statutory tax withholding threshold to qualify for equity classification up to the maximum statutory tax rates in the applicable jurisdiction(s). The ASU also clarifies that cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity. The ASU provides an optional accounting policy election (with limited exceptions), to be applied on an entity-wide basis, to either estimate the number of awards that are expected to vest (consistent with existing U.S. GAAP) or account for forfeitures when they occur. The amendments are effective for public business entities for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the impact of the pending adoption of the ASU on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The ASU establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of the pending adoption of the ASU on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10), “Recognition and Measurement of Financial Assets and Financial Liabilities” which requires an entity to: (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in other comprehensive income the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price and; (v) assess a valuation allowance on deferred tax assets related to unrealized losses of available for sale debt securities in combination with other deferred tax assets. This ASU provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes and also requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. For public entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Generally, early adoption of the amendments in this ASU is not permitted. The Company believes that adoption in 2018 will not 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 FASB subsequently issued ASU 2016-08 which updates the new standard by clarifying the principal versus agent implementation guidance and ASU 2016-10 which clarifies identifying performance obligations and the licensing implementation guidance, but neither change the core principle of the new standard. The FASB also subsequently issued ASU 2015-14 to defer the effective date of the new standard by one year. As such, it now takes effect for public entities in fiscal years beginning after December 15, 2017, 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). Early adoption is permitted for any entity that chooses to adopt the new standard as of the original effective date. The Company has not yet determined the method by which it will adopt ASU 2014-09 in 2018 and does not believe that the adoption will have a material effect on the Company’s consolidated financial statements.

XML

ACCUMULATED OTHER COMPREHENSIVE INCOME/LOSS ("AOCI")

3 Months Ended

Mar. 31, 2016

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

ACCUMULATED OTHER COMPREHENSIVE INCOME/LOSS ("AOCI")

2. ACCUMULATED OTHER COMPREHENSIVE INCOME/LOSS (“AOCI”)

The changes in the Company’s AOCI by component, net of tax, for the three months ended March 31, 2016 and 2015 follow (in thousands).

	Three Months Ended March 31, 2016												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			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	$	1,436		$	(1,395	)	$	(8,617	)	$	(8,576	)	$	2,637		$	(1,805	)	$	(7,675	)	$	(6,843	)
Other comprehensive income before reclassifications		1,612			-			-			1,612			1,091			-			-			1,091
Amounts reclassified from AOCI		(4	)		305			-			301			(16	)		41			-			25
Net other comprehensive income		1,608			305			-			1,913			1,075			41			-			1,116
Ending balance	$	3,044		$	(1,090	)	$	(8,617	)	$	(6,663	)	$	3,712		$	(1,764	)	$	(7,675	)	$	(5,727	)

Reclassifications out of AOCI for the three months ended March 31, 2016 and 2015 follow (in thousands).

	Amount Reclassified from AOCI
	Three Months Ended March 31,						Affected Line Item in the Statement
Details about AOCI Components	2016			2015			Where Net Income is Presented
Unrealized gains and losses on available for sale securities	$	6		$	26		Net gain on sale of securities available for sale
Unrealized losses on securities transferred from available for sale to held to maturity		(488	)		(68	)	Interest income - U.S. Government agency obligations
Subtotal, pre-tax		(482	)		(42	)
Income tax effect		181			17		Income tax expense
Total, net of tax	$	(301	)	$	(25	)

XML

INVESTMENT SECURITIES

3 Months Ended

Mar. 31, 2016

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, trading or held to maturity, depending upon investment objectives, liquidity needs and intent.

In 2014, investment securities with a fair value of $48 million and an 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, equal to the unrealized holding losses at the date of transfer, is being accreted to interest income over the remaining life of the security. The unrealized holding losses at the date of transfer remained in AOCI and are being amortized simultaneously against interest income. Those amounts 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, 2016 and December 31, 2015 were as follows (in thousands):

	March 31, 2016									December 31, 2015
	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	$	25,982	$	9	$	(19	)	$	25,972	$	28,977	$	2	$	(463	)	$	28,516
Obligations of states and political subdivisions		93,877		4,235		-			98,112		100,215		4,467		-			104,682
Collateralized mortgage obligations		19,398		93		(57	)		19,434		15,795		2		(248	)		15,549
Mortgage-backed securities		95,877		1,161		(83	)		96,955		93,719		39		(1,316	)		92,442
Corporate bonds		9,000		-		(210	)		8,790		6,000		-		(90	)		5,910
Total available for sale securities		244,134		5,498		(369	)		249,263		244,706		4,510		(2,117	)		247,099
Held to maturity:
U.S. Government agency securities		29,513		1,836		-			31,349		43,570		1,450		-			45,020
Obligations of states and political subdivisions		11,628		563		-			12,191		11,739		536		-			12,275
Corporate bonds		6,000		80		-			6,080		6,000		7		(30	)		5,977
Total held to maturity securities		47,141		2,479		-			49,620		61,309		1,993		(30	)		63,272
Total investment securities	$	291,275	$	7,977	$	(369	)	$	298,883	$	306,015	$	6,503	$	(2,147	)	$	310,371

At March 31, 2016 and December 31, 2015, investment securities carried at $251 million and $261 million, respectively, were pledged primarily 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, 2016 (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, 2016
	Amortized Cost		Fair Value
Securities available for sale:
Due in one year or less	$	21,600	$	21,838
Due from one to five years		134,975		139,088
Due from five to ten years		87,559		88,337
Total securities available for sale		244,134		249,263
Securities held to maturity:
Due in one year or less		836		843
Due from one to five years		4,191		4,405
Due from five to ten years		23,667		24,578
Due after ten years		18,447		19,794
Total securities held to maturity		47,141		49,620
Total investment securities	$	291,275	$	298,883

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

	Three Months Ended March 31,
	2016		2015
Proceeds	$	-	$	531
Gross realized gains	$	6	$	26
Gross realized losses		-		-
Net realized gains	$	6	$	26

Information pertaining to securities with unrealized losses at March 31, 2016 and December 31, 2015, 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, 2016	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Government agency securities	$	4,965	$	(19	)	$	-	$	-		$	4,965	$	(19	)
Collateralized mortgage obligations		-		-			8,286		(57	)		8,286		(57	)
Mortgage-backed securities		9,315		(20	)		13,727		(63	)		23,042		(83	)
Corporate bonds		5,790		(210	)		-		-			5,790		(210	)
Total	$	20,070	$	(249	)	$	22,013	$	(120	)	$	42,083	$	(369	)

	Less than 12 months					12 months or longer					Total
December 31, 2015	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Government agency securities	$	16,744	$	(233	)	$	9,770	$	(230	)	$	26,514	$	(463	)
Collateralized mortgage obligations		1,831		(4	)		8,200		(244	)		10,031		(248	)
Mortgage-backed securities		66,804		(884	)		17,936		(432	)		84,740		(1,316	)
Corporate bonds		8,880		(120	)		-		-			8,880		(120	)
Total	$	94,259	$	(1,241	)	$	35,906	$	(906	)	$	130,165	$	(2,147	)

All securities with unrealized losses for twelve months or longer at March 31, 2016 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 OTTI was present at March 31, 2016.

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.

In conjunction with the sale of Visa Class B shares in 2013, 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. The Company’s recorded liability representing the fair value of the derivative was $752 thousand at March 31, 2016 and December 31, 2015.

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, 2016 and 2015, $74 thousand and $70 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, 2016 and December 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, 2016 and December 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.

XML

LOANS

3 Months Ended

Mar. 31, 2016

LOANS [Abstract]

LOANS

4. LOANS

At March 31, 2016 and December 31, 2015, net loans disaggregated by class consisted of the following (in thousands):

	March 31, 2016			December 31, 2015
Commercial and industrial	$	195,321		$	189,769
Commercial real estate		718,934			696,787
Multifamily		480,678			426,549
Mixed use commercial		83,421			78,787
Real estate construction		37,373			37,233
Residential mortgages		181,649			186,313
Home equity		45,447			44,951
Consumer		5,249			6,058
Gross loans		1,748,072			1,666,447
Allowance for loan losses		(20,930	)		(20,685	)
Net loans at end of period	$	1,727,142		$	1,645,762

There were no loans in the process of foreclosure collateralized by residential real estate property at March 31, 2016.

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, 2016												Three Months Ended March 31, 2015
	Balance at  beginning of period		Charge- offs			Recoveries		(Credit) provision for loan losses			Balance at  end of period		Balance at beginning of period		Charge- offs			Recoveries		Provision (credit) for  loan losses			Balance at end of period
Commercial and industrial	$	1,875	$	-		$	45	$	(16	)	$	1,904	$	1,560	$	(492	)	$	343	$	587		$	1,998
Commercial real estate		7,019		-			10		261			7,290		6,777		-			7		568			7,352
Multifamily		4,688		-			-		835			5,523		4,018		-			-		449			4,467
Mixed use commercial		766		-			-		86			852		261		-			-		12			273
Real estate construction		386		-			-		2			388		383		-			-		(23	)		360
Residential mortgages		2,476		-			2		(268	)		2,210		3,027		-			11		(420	)		2,618
Home equity		639		(7	)		1		(56	)		577		709		-			2		17			728
Consumer		106		(58	)		2		47			97		166		(1	)		5		(15	)		155
Unallocated		2,730		-			-		(641	)		2,089		2,299		-			-		(925	)		1,374
Total	$	20,685	$	(65	)	$	60	$	250		$	20,930	$	19,200	$	(493	)	$	368	$	250		$	19,325

At March 31, 2016 and December 31, 2015, 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, 2016 and December 31, 2015 disaggregated by class and impairment methodology (in thousands).

	Allowance for Loan Losses						Loan Balances
March 31, 2016	Individually  evaluated for impairment		Collectively  evaluated for impairment		Ending balance		Individually  evaluated for  impairment		Collectively evaluated for impairment		Ending balance
Commercial and industrial	$	84	$	1,820	$	1,904	$	4,957	$	190,364	$	195,321
Commercial real estate		-		7,290		7,290		4,511		714,423		718,934
Multifamily		-		5,523		5,523		-		480,678		480,678
Mixed use commercial		-		852		852		-		83,421		83,421
Real estate construction		-		388		388		-		37,373		37,373
Residential mortgages		430		1,780		2,210		5,152		176,497		181,649
Home equity		143		434		577		1,645		43,802		45,447
Consumer		43		54		97		297		4,952		5,249
Unallocated		-		2,089		2,089		-		-		-
Total	$	700	$	20,230	$	20,930	$	16,562	$	1,731,510	$	1,748,072

	Allowance for Loan Losses						Loan Balances
December 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	$	-	$	1,875	$	1,875	$	2,872	$	186,897	$	189,769
Commercial real estate		-		7,019		7,019		4,334		692,453		696,787
Multifamily		-		4,688		4,688		-		426,549		426,549
Mixed use commercial		-		766		766		-		78,787		78,787
Real estate construction		-		386		386		-		37,233		37,233
Residential mortgages		559		1,917		2,476		5,817		180,496		186,313
Home equity		170		469		639		1,683		43,268		44,951
Consumer		48		58		106		379		5,679		6,058
Unallocated		-		2,730		2,730		-		-		-
Total	$	777	$	19,908	$	20,685	$	15,085	$	1,651,362	$	1,666,447

The following table presents the Company’s impaired loans disaggregated by class at March 31, 2016 and December 31, 2015 (in thousands).

	March 31, 2016						December 31, 2015
	Unpaid  Principal  Balance		Recorded Balance		Allowance Allocated		Unpaid Principal Balance		Recorded Balance		Allowance Allocated
With no allowance recorded:
Commercial and industrial	$	3,929	$	3,929	$	-	$	2,869	$	2,869	$	-
Commercial real estate		4,929		4,511		-		4,753		4,334		-
Residential mortgages		3,056		2,927		-		3,076		2,947		-
Home equity		1,300		1,300		-		1,233		1,233		-
Consumer		129		129		-		207		207		-
Subtotal		13,343		12,796		-		12,138		11,590		-
With an allowance recorded:
Commercial and industrial		1,028		1,028		84		3		3		-
Residential mortgages		2,225		2,225		430		2,870		2,870		559
Home equity		361		345		143		586		450		170
Consumer		168		168		43		172		172		48
Subtotal		3,782		3,766		700		3,631		3,495		777
Total	$	17,125	$	16,562	$	700	$	15,769	$	15,085	$	777

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, 2016 and 2015 (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,
	2016				2015
	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	$	2,875	$	18	$	4,551	$	33
Commercial real estate		4,319		35		10,208		50
Residential mortgages		5,693		48		5,411		38
Home equity		1,671		15		1,662		13
Consumer		338		4		383		3
Total	$	14,896	$	120	$	22,215	$	137

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 $494 thousand and $534 thousand of specific reserves to customers whose loan terms have been modified as TDRs as of March 31, 2016 and December 31, 2015, 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.

At March 31, 2016 and December 31, 2015, $45 thousand was committed to be advanced in connection with TDRs, 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, 2016 and December 31, 2015 are as follows (dollars in thousands):

	March 31, 2016				December 31, 2015
TDRs Outstanding	Number of  Loans		Outstanding Recorded  Balance		Number of Loans		Outstanding  Recorded  Balance
Commercial and industrial		16	$	988		17	$	1,116
Commercial real estate		5		4,080		5		4,131
Residential mortgages		22		4,625		22		4,653
Home equity		5		1,354		5		1,362
Consumer		8		296		8		301
Total		56	$	11,343		57	$	11,563

The following presents, disaggregated by class, information regarding TDRs executed during the three months ended March 31, 2016 and 2015 (dollars in thousands):

	Three Months Ended March 31,
	2016						2015
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
Residential mortgages		-		-		-		2		194		199
Total		-	$	-	$	-		3	$	206	$	211

There were no 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, 2016 and 2015.

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.

At March 31, 2016 and December 31, 2015, non-accrual loans disaggregated by class were as follows (dollars in thousands):

	March 31, 2016										December 31, 2015
	Non- accrual  loans		% of Total			Total Loans		% of Total Loans			Non- accrual loans		% of  Total			Total Loans		% of Total  Loans
Commercial and industrial	$	4,128		59.0	%	$	195,321		0.2	%	$	1,954		35.3	%	$	189,769		0.1	%
Commercial real estate		1,959		28.0			718,934		0.1			1,733		31.4			696,787		0.1
Multifamily		-		-			480,678		-			-		-			426,549		-
Mixed use commercial		-		-			83,421		-			-		-			78,787		-
Real estate construction		-		-			37,373		-			-		-			37,233		-
Residential mortgages		724		10.3			181,649		0.1			1,358		24.6			186,313		0.1
Home equity		186		2.7			45,447		-			406		7.3			44,951		-
Consumer		1		-			5,249		-			77		1.4			6,058		-
Total	$	6,998		100.0	%	$	1,748,072		0.4	%	$	5,528		100.0	%	$	1,666,447		0.3	%

Additional interest income of approximately $98 thousand and $180 thousand would have been recorded during the three months ended March 31, 2016 and 2015, respectively, if non-accrual loans had performed in accordance with their original terms.

At March 31, 2016 and December 31, 2015, past due loans disaggregated by class were as follows (in thousands).

	Past Due
March 31, 2016	30 - 59 days			60 - 89 days			90 days and over			Total			Current			Total
Commercial and industrial	$	6		$	40		$	4,128		$	4,174		$	191,147		$	195,321
Commercial real estate		-			222			1,959			2,181			716,753			718,934
Multifamily		-			-			-			-			480,678			480,678
Mixed use commercial		-			-			-			-			83,421			83,421
Real estate construction		-			-			-			-			37,373			37,373
Residential mortgages		588			174			724			1,486			180,163			181,649
Home equity		200			-			186			386			45,061			45,447
Consumer		3			-			1			4			5,245			5,249
Total	$	797		$	436		$	6,998		$	8,231		$	1,739,841		$	1,748,072
% of Total Loans		0.1	%		0.0	%		0.4	%		0.5	%		99.5	%		100.0	%

	Past Due
December 31, 2015	30 - 59 days			60 - 89 days			90 days and over			Total			Current			Total
Commercial and industrial	$	21		$	-		$	1,954		$	1,975		$	187,794		$	189,769
Commercial real estate		-			-			1,733			1,733			695,054			696,787
Multifamily		-			-			-			-			426,549			426,549
Mixed use commercial		-			-			-			-			78,787			78,787
Real estate construction		-			-			-			-			37,233			37,233
Residential mortgages		512			175			1,358			2,045			184,268			186,313
Home equity		336			-			406			742			44,209			44,951
Consumer		2			-			77			79			5,979			6,058
Total	$	871		$	175		$	5,528		$	6,574		$	1,659,873		$	1,666,447
% of Total Loans		0.1	%		0.0	%		0.3	%		0.4	%		99.6	%		100.0	%

The Company utilizes an eight-grade risk-rating system for loans. Loans in risk grades 1- 4 are considered pass loans. The Company’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 Company, 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 Company 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 Company 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 Company annually reviews the ratings on all loans greater than $750 thousand. Annually, the Company engages an independent third-party to review a significant portion of loans within the commercial and industrial, commercial real estate, multifamily, mixed use commercial 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, 2016 and December 31, 2015 (in thousands).

	March 31, 2016												December 31, 2015
	Grade												Grade
	Pass			Special mention			Substandard			Total			Pass			Special mention			Substandard			Total
Commercial and industrial	$	186,625		$	1,716		$	6,980		$	195,321		$	180,024		$	3,088		$	6,657		$	189,769
Commercial real estate		710,860			4,921			3,153			718,934			687,210			6,109			3,468			696,787
Multifamily		480,678			-			-			480,678			426,549			-			-			426,549
Mixed use commercial		83,421			-			-			83,421			78,779			-			8			78,787
Real estate construction		37,373			-			-			37,373			37,233			-			-			37,233
Residential mortgages		180,751			-			898			181,649			184,781			-			1,532			186,313
Home equity		45,261			-			186			45,447			44,545			-			406			44,951
Consumer		5,248			-			1			5,249			5,939			-			119			6,058
Total	$	1,730,217		$	6,637		$	11,218		$	1,748,072		$	1,645,060		$	9,197		$	12,190		$	1,666,447
% of Total		99.0	%		0.4	%		0.6	%		100.0	%		98.7	%		0.6	%		0.7	%		100.0	%

XML

RETIREMENT PLAN

3 Months Ended

Mar. 31, 2016

RETIREMENT PLAN [Abstract]

RETIREMENT PLAN

5. RETIREMENT PLAN

The Company’s retirement plan is noncontributory and covers substantially all eligible employees. The plan conforms to the provisions of the Employee Retirement Income Security Act of 1974, as amended, and the Pension Protection Act of 2006, which requires certain funding rules for defined benefit plans. The Company’s policy is to accrue for all pension costs and to fund the maximum amount allowable for tax purposes. Actuarial gains and losses that arise from changes in assumptions concerning future events are amortized over a period that reflects the long-term nature of pension expense used in estimating pension costs. Certain provisions of the Company’s retirement plan were amended in 2012. These amendments froze the plan such that no additional pension benefits would accumulate.

For the three months ended March 31, 2016 and 2015, the Company’s net periodic pension credit was $13 thousand and $111 thousand, respectively.

In December 2015, the Company made an optional contribution of $1 million for the plan year ended September 30, 2016. No minimum contribution was required. The Company does not presently expect to contribute to its retirement plan in 2016.

XML

STOCK-BASED COMPENSATION

3 Months Ended

Mar. 31, 2016

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.

No options have been granted since 2013. Options granted in 2013 and 2012 were exercisable commencing one year from the date of grant at a rate of one-third per year. Options granted prior to 2012 were generally 100% exercisable commencing one year from the date of grant. All options are exercisable for a period of ten years or less.

No options were exercised during the first three months of 2016. The total intrinsic value of options exercised during the first three months of 2015 was $6 thousand. The total cash received from the 2015 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.

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, 2016, there were 6,000 SARs outstanding related to options granted before 2011. The SARs had no intrinsic value at March 31, 2016. 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, 2016		185,100		$	15.73
Granted		-			-
Exercised		-			-
Forfeited or expired		(3,000	)	$	34.95
Outstanding, March 31, 2016		182,100		$	15.41

The following summarizes shares subject to purchase from stock options outstanding and exercisable as of March 31, 2016:

		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		90,000	5.8 years	$	11.68		73,334	5.8 years	$	11.88
$	14.01 - $20.00		83,100	7.3 years	$	17.80		58,606	7.3 years	$	17.59
$	20.01 - $30.00		3,000	2.8 years	$	28.30		3,000	2.8 years	$	28.30
$	30.01 - $40.00		6,000	1.3 years	$	32.04		6,000	1.3 years	$	32.04
			182,100	6.3 years	$	15.41		140,940	6.2 years	$	15.46

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 2016 and 2015, the Company awarded 31,621 and 51,562 shares of restricted stock to certain key employees and directors. Generally, the restricted stock awards vest over a three-year period commencing one year from the date of grant at a rate of one-third per year. The fair value at grant date of the 15,682 restricted shares that vested during the first three months of 2016 was $357 thousand. Of the 15,682 vested shares, 3,898 were withheld to pay taxes due upon vesting. No restricted shares vested during the first three months of 2015. A summary of restricted stock activity follows:

	Number of Shares			Weighted-Average Grant-Date Fair Value
Unvested, January 1, 2016		108,073		$	22.94
Granted		31,621		$	25.13
Vested		(15,682	)	$	22.76
Forfeited or expired		(50	)	$	25.13
Unvested, March 31, 2016		123,962		$	23.52

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 $224 thousand and $222 thousand for the three months ended March 31, 2016 and 2015, respectively. The remaining unrecognized compensation cost of approximately $40 thousand and $2.1 million at March 31, 2016 related to stock options and restricted stock, respectively, will be expensed over the remaining weighted average vesting period of approximately 0.6 years and 1.9 years, respectively.

Under the 2009 Plan, a total of 500,000 shares of the Company’s common stock were reserved for issuance, of which 135,257 shares remain for possible issuance at March 31, 2016. There are no remaining shares reserved for issuance under the 1999 Stock Option Plan.

XML

INCOME TAXES

3 Months Ended

Mar. 31, 2016

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, 2016, the Company had net operating loss carryforwards of approximately $10.6 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 $471 thousand, 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 had no unrecognized tax benefits at March 31, 2016 as compared to $34 thousand at 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. The Company’s Federal tax returns were audited for the tax years 2010 through 2013; there was no significant change in income taxes as a result of these audits.

XML

REGULATORY MATTERS

3 Months Ended

Mar. 31, 2016

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 business, results of operations and financial condition. 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).

The Office of the Comptroller of the Currency (“OCC”), the Company’s primary bank regulator, may also establish higher capital requirements than those set forth in its capital regulations. The Company expects the OCC to establish individual minimum capital ratios for the Bank that will require it to maintain a tier 1 leverage ratio of at least 9%, a tier 1 risk-based capital ratio of at least 11% and a total risk-based capital ratio of at least 12%. At March 31, 2016, the Bank satisfied the OCC’s regulatory capital requirements as well as these individual minimum capital ratios, although there is no guarantee that the Bank will be able to maintain compliance with these heightened capital ratios.

In July 2013, the 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. 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 its capital needs.

The final capital rules 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 capital buffer requirement is being phased in beginning January 1, 2016 at 0.625% per year until it becomes 2.50% in 2019 and thereafter. At March 31, 2016, the Company’s and the Bank’s capital buffers were in excess of both the current and fully phased-in requirements.

The Bank’s capital amounts (in thousands) and ratios are presented in the table that follows. The minimum amounts presented therein reference the minimums required by capital regulations and not the individual minimum capital ratios the Company expects the OCC to establish for the Bank.

	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, 2016
Total capital to risk-weighted assets	$	224,004		12.38	%	$	144,714		8.00	%	$	180,893		10.00	%
Tier 1 capital to risk-weighted assets		202,783		11.21	%		108,536		6.00	%		144,714		8.00	%
Common equity tier 1 capital to risk-weighted assets		202,783		11.21	%		81,402		4.50	%		117,580		6.50	%
Tier 1 capital to adjusted average assets (leverage)		202,783		9.30	%		87,228		4.00	%		109,036		5.00	%
December 31, 2015
Total capital to risk-weighted assets	$	219,562		12.66	%	$	138,716		8.00	%	$	173,395		10.00	%
Tier 1 capital to risk-weighted assets		198,587		11.45	%		104,037		6.00	%		138,716		8.00	%
Common equity tier 1 capital to risk-weighted assets		198,587		11.45	%		78,028		4.50	%		112,706		6.50	%
Tier 1 capital to adjusted average assets (leverage)		198,587		9.58	%		82,905		4.00	%		103,632		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 9.52%, 11.48%, 11.48% and 12.65%, respectively, at March 31, 2016. The Company’s tier 1 leverage, common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios were 9.77%, 11.68%, 11.68% and 12.89%, respectively, at December 31, 2015.

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.

XML

FAIR VALUE

3 Months Ended

Mar. 31, 2016

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, 2016				December 31, 2015
	Fair Value Hierarchy	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets:
Cash and due from banks	Level 1	$	117,186	$	117,186	$	98,086	$	98,086
Federal Reserve and Federal Home Loan Bank stock and other investments	Level 2		10,531		10,531		10,756		10,756
Investment securities held to maturity	Level 2		47,141		49,620		61,309		63,272
Investment securities available for sale	Level 2		249,263		249,263		247,099		247,099
Loans held for sale	Level 2		573		573		1,666		1,666
Loans, net of allowance	Level 2, 3 (1)		1,727,142		1,724,439		1,645,762		1,628,169
Accrued interest and loan fees receivable	Level 2		6,570		6,570		5,859		5,859
Financial Liabilities:
Non-maturity deposits	Level 2		1,640,528		1,640,528		1,555,980		1,555,980
Time deposits	Level 2		229,841		229,829		224,643		224,408
Borrowings	Level 2		160,000		160,146		165,000		164,827
Accrued interest payable	Level 2		196		196		198		198
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 due to the short term nature of these instruments. Determining the fair value of Federal Reserve and Federal Home Loan Bank stock and other investments is not practicable due to restrictions placed on its transferability; thus, carrying amount is a reasonable estimate of fair value. 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 Company’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.

OREO properties are initially recorded at fair value, less estimated costs to sell when acquired, establishing a new cost basis. Adjustments to OREO are measured at fair value, less estimated costs to sell. Fair values are generally based on third party appraisals or realtor evaluations of the property. These appraisals and evaluations may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less estimated costs to sell, an impairment loss is recognized through a valuation allowance, and the property is reported as non-recurring Level 3. No valuation allowance was recorded for OREO at March 31, 2016.

In conjunction with the sale of Visa Class B shares in 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, 2016, 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, 2016		Fair Value  Measurements Using Significant Unobservable  Inputs (Level 3)
Impaired loans	$	3,066	$	3,066
OREO		650		650
Total	$	3,716	$	3,716

Assets:	December 31, 2015		Fair Value  Measurements Using  Significant Unobservable  Inputs (Level 3)
Impaired loans	$	2,715	$	2,715
Total	$	2,715	$	2,715

The Company had no liabilities measured at fair value on a non-recurring basis at March 31, 2016 and December 31, 2015.

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, 2016		December 31, 2015		Valuation Technique	Unobservable Inputs	Discount
Impaired loans:
Commercial and industrial	$	944	$	-	Advance rate against inventory and receivables	Discount to financial statement values	25% to 50%		(1)
Residential mortgages		1,795		2,311	Third party appraisal	Discount to appraised value		25%	(2)
Home equity		202		280	Third party appraisal	Discount to appraised value		25%	(2)
Consumer		125		124	Third party appraisal	Discount to appraised value		25%	(3)
Total	$	3,066	$	2,715
OREO	$	650	$	-	Third party appraisal	Estimated selling costs		N/A

(1) The Company makes adjustments 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.

(2) Of which estimated selling costs are approximately 9% - 15% of the total discount.

(3) Of which estimated selling costs are approximately 10% - 12% of the total discount.

The following presents fair value measurements on a recurring basis at March 31, 2016 and December 31, 2015 (in thousands):

			Fair Value Measurements Using
Assets:	March 31, 2016		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government agency securities	$	25,972	$	25,972	$	-
Obligations of states and political subdivisions		98,112		98,112		-
Collateralized mortgage obligations		19,434		19,434		-
Mortgage-backed securities		96,955		96,955		-
Corporate bonds		8,790		8,790		-
Total	$	249,263	$	249,263	$	-
Liabilities:
Derivatives	$	752	$	-	$	752
Total	$	752	$	-	$	752

			Fair Value Measurements Using
Assets:	December 31, 2015		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs  (Level 3)
U.S. Government agency securities	$	28,516	$	28,516	$	-
Obligations of states and political subdivisions		104,682		104,682		-
Collateralized mortgage obligations		15,549		15,549		-
Mortgage-backed securities		92,442		92,442		-
Corporate bonds		5,910		5,910		-
Total	$	247,099	$	247,099	$	-
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,
	2016		2015
	Liabilities Derivatives		Liabilities Derivatives
Beginning balance	$	752	$	752
Net change		-		-
Ending balance	$	752	$	752

XML

LEGAL PROCEEDINGS

3 Months Ended

Mar. 31, 2016

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.

XML

BORROWINGS

3 Months Ended

Mar. 31, 2016

BORROWINGS [Abstract]

BORROWINGS

11. BORROWINGS

The following summarizes borrowed funds at March 31, 2016 and December 31, 2015 (dollars in thousands):

As of or for the Three Months Ended March 31, 2016	Federal Home Loan Bank Borrowings Short-Term			Federal Home Loan Bank Borrowings Long-Term			Federal Funds Purchased
Daily average outstanding	$	119,407		$	15,000		$	-
Total interest cost		176			66			-
Average interest rate paid		0.58	%		1.76	%		-	%
Maximum amount outstanding at any month-end	$	160,000		$	15,000		$	-
Ending balance		145,000			15,000			-
Weighted-average interest rate on balances outstanding		0.49	%		1.76	%		-	%

As of or for the Year Ended December 31, 2015	Federal Home Loan Bank Borrowings Short-Term			Federal Home Loan Bank Borrowings Long-Term			Federal Funds Purchased
Daily average outstanding	$	63,935		$	10,808		$	3
Total interest cost		252			190			-
Average interest rate paid		0.39	%		1.76	%		0.45	%
Maximum amount outstanding at any month-end	$	155,000		$	15,000		$	-
Ending balance		150,000			15,000			-
Weighted-average interest rateon balances outstanding		0.52	%		1.76	%		-	%

Assets pledged as collateral to the Federal Home Loan Bank (“FHLB”), consisting of eligible loans and investment securities, at March 31, 2016 and December 31, 2015 resulted in a maximum borrowing potential of $713 million and $746 million, respectively. The Company had $160 million and $165 million in FHLB borrowings at March 31, 2016 and December 31, 2015, respectively.

XML

FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2016

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, 2016 and 2015 follows.

	Three Months Ended March 31,
	2016		2015
Weighted average common shares outstanding		11,714,826		11,602,924
Weighted average unvested restricted shares		114,369		91,503
Weighted average shares for basic earnings per share		11,829,195		11,694,427
Additional diluted shares:
Stock options		71,613		68,672
Weighted average shares for diluted earnings per share		11,900,808		11,763,099

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. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. 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, multifamily, mixed use commercial, real estate construction and residential mortgages 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 include consideration of the following: levels and trends in various risk rating categories; 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. 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.

Other Real Estate Owned

Other Real Estate Owned (“OREO”) - Property acquired through foreclosure, or OREO, is initially stated at the lower of cost or fair value less estimated selling costs. Losses arising at the time of the acquisition of property are charged against the allowance for loan losses. Any additional write-downs to the carrying value of these assets that may be required, as well as the cost of maintaining and operating these foreclosed properties, are charged to expense. The Company held OREO amounting to $650 thousand at March 31, 2016 resulting from the addition of one residential property during the first quarter of 2016.

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 March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Compensation—Stock Compensation (Topic 718), “Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 introduces targeted amendments intended to simplify the accounting for stock compensation. Specifically, the ASU requires all excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) to be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity also should recognize excess tax benefits, and assess the need for a valuation allowance, regardless of whether the benefit reduces taxes payable in the current period. The ASU also requires excess tax benefits to be classified along with other income tax cash flows as an operating activity in the statement of cash flows. In addition, the ASU elevates the statutory tax withholding threshold to qualify for equity classification up to the maximum statutory tax rates in the applicable jurisdiction(s). The ASU also clarifies that cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity. The ASU provides an optional accounting policy election (with limited exceptions), to be applied on an entity-wide basis, to either estimate the number of awards that are expected to vest (consistent with existing U.S. GAAP) or account for forfeitures when they occur. The amendments are effective for public business entities for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the impact of the pending adoption of the ASU on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The ASU establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of the pending adoption of the ASU on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10), “Recognition and Measurement of Financial Assets and Financial Liabilities” which requires an entity to: (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in other comprehensive income the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price and; (v) assess a valuation allowance on deferred tax assets related to unrealized losses of available for sale debt securities in combination with other deferred tax assets. This ASU provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes and also requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. For public entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Generally, early adoption of the amendments in this ASU is not permitted. The Company believes that adoption in 2018 will not 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 FASB subsequently issued ASU 2016-08 which updates the new standard by clarifying the principal versus agent implementation guidance and ASU 2016-10 which clarifies identifying performance obligations and the licensing implementation guidance, but neither change the core principle of the new standard. The FASB also subsequently issued ASU 2015-14 to defer the effective date of the new standard by one year. As such, it now takes effect for public entities in fiscal years beginning after December 15, 2017, 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). Early adoption is permitted for any entity that chooses to adopt the new standard as of the original effective date. The Company has not yet determined the method by which it will adopt ASU 2014-09 in 2018 and does not believe that the adoption will have a material effect on the Company’s consolidated financial statements.

XML

FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Tables)

3 Months Ended

Mar. 31, 2016

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, 2016 and 2015 follows.

	Three Months Ended March 31,
	2016		2015
Weighted average common shares outstanding		11,714,826		11,602,924
Weighted average unvested restricted shares		114,369		91,503
Weighted average shares for basic earnings per share		11,829,195		11,694,427
Additional diluted shares:
Stock options		71,613		68,672
Weighted average shares for diluted earnings per share		11,900,808		11,763,099

XML

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

3 Months Ended

Mar. 31, 2016

ACCUMULATED OTHER COMPREHENSIVE INCOME/LOSS ("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, 2016 and 2015 follow (in thousands).

	Three Months Ended March 31, 2016												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			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	$	1,436		$	(1,395	)	$	(8,617	)	$	(8,576	)	$	2,637		$	(1,805	)	$	(7,675	)	$	(6,843	)
Other comprehensive income before reclassifications		1,612			-			-			1,612			1,091			-			-			1,091
Amounts reclassified from AOCI		(4	)		305			-			301			(16	)		41			-			25
Net other comprehensive income		1,608			305			-			1,913			1,075			41			-			1,116
Ending balance	$	3,044		$	(1,090	)	$	(8,617	)	$	(6,663	)	$	3,712		$	(1,764	)	$	(7,675	)	$	(5,727	)

Reclassifications out of AOCI

Reclassifications out of AOCI for the three months ended March 31, 2016 and 2015 follow (in thousands).

	Amount Reclassified from AOCI
	Three Months Ended March 31,						Affected Line Item in the Statement
Details about AOCI Components	2016			2015			Where Net Income is Presented
Unrealized gains and losses on available for sale securities	$	6		$	26		Net gain on sale of securities available for sale
Unrealized losses on securities transferred from available for sale to held to maturity		(488	)		(68	)	Interest income - U.S. Government agency obligations
Subtotal, pre-tax		(482	)		(42	)
Income tax effect		181			17		Income tax expense
Total, net of tax	$	(301	)	$	(25	)

XML

INVESTMENT SECURITIES (Tables)

3 Months Ended

Mar. 31, 2016

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, 2016 and December 31, 2015 were as follows (in thousands):

	March 31, 2016									December 31, 2015
	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	$	25,982	$	9	$	(19	)	$	25,972	$	28,977	$	2	$	(463	)	$	28,516
Obligations of states and political subdivisions		93,877		4,235		-			98,112		100,215		4,467		-			104,682
Collateralized mortgage obligations		19,398		93		(57	)		19,434		15,795		2		(248	)		15,549
Mortgage-backed securities		95,877		1,161		(83	)		96,955		93,719		39		(1,316	)		92,442
Corporate bonds		9,000		-		(210	)		8,790		6,000		-		(90	)		5,910
Total available for sale securities		244,134		5,498		(369	)		249,263		244,706		4,510		(2,117	)		247,099
Held to maturity:
U.S. Government agency securities		29,513		1,836		-			31,349		43,570		1,450		-			45,020
Obligations of states and political subdivisions		11,628		563		-			12,191		11,739		536		-			12,275
Corporate bonds		6,000		80		-			6,080		6,000		7		(30	)		5,977
Total held to maturity securities		47,141		2,479		-			49,620		61,309		1,993		(30	)		63,272
Total investment securities	$	291,275	$	7,977	$	(369	)	$	298,883	$	306,015	$	6,503	$	(2,147	)	$	310,371

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, 2016 (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, 2016
	Amortized Cost		Fair Value
Securities available for sale:
Due in one year or less	$	21,600	$	21,838
Due from one to five years		134,975		139,088
Due from five to ten years		87,559		88,337
Total securities available for sale		244,134		249,263
Securities held to maturity:
Due in one year or less		836		843
Due from one to five years		4,191		4,405
Due from five to ten years		23,667		24,578
Due after ten years		18,447		19,794
Total securities held to maturity		47,141		49,620
Total investment securities	$	291,275	$	298,883

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 (in thousands) for the periods indicated. Realized gains are also inclusive of gains on called securities.

	Three Months Ended March 31,
	2016		2015
Proceeds	$	-	$	531
Gross realized gains	$	6	$	26
Gross realized losses		-		-
Net realized gains	$	6	$	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, 2016 and December 31, 2015, 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, 2016	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Government agency securities	$	4,965	$	(19	)	$	-	$	-		$	4,965	$	(19	)
Collateralized mortgage obligations		-		-			8,286		(57	)		8,286		(57	)
Mortgage-backed securities		9,315		(20	)		13,727		(63	)		23,042		(83	)
Corporate bonds		5,790		(210	)		-		-			5,790		(210	)
Total	$	20,070	$	(249	)	$	22,013	$	(120	)	$	42,083	$	(369	)

	Less than 12 months					12 months or longer					Total
December 31, 2015	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Government agency securities	$	16,744	$	(233	)	$	9,770	$	(230	)	$	26,514	$	(463	)
Collateralized mortgage obligations		1,831		(4	)		8,200		(244	)		10,031		(248	)
Mortgage-backed securities		66,804		(884	)		17,936		(432	)		84,740		(1,316	)
Corporate bonds		8,880		(120	)		-		-			8,880		(120	)
Total	$	94,259	$	(1,241	)	$	35,906	$	(906	)	$	130,165	$	(2,147	)

XML

LOANS (Tables)

3 Months Ended

Mar. 31, 2016

LOANS [Abstract]

Categorizes total loans

At March 31, 2016 and December 31, 2015, net loans disaggregated by class consisted of the following (in thousands):

	March 31, 2016			December 31, 2015
Commercial and industrial	$	195,321		$	189,769
Commercial real estate		718,934			696,787
Multifamily		480,678			426,549
Mixed use commercial		83,421			78,787
Real estate construction		37,373			37,233
Residential mortgages		181,649			186,313
Home equity		45,447			44,951
Consumer		5,249			6,058
Gross loans		1,748,072			1,666,447
Allowance for loan losses		(20,930	)		(20,685	)
Net loans at end of period	$	1,727,142		$	1,645,762

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, 2016												Three Months Ended March 31, 2015
	Balance at  beginning of period		Charge- offs			Recoveries		(Credit) provision for loan losses			Balance at  end of period		Balance at beginning of period		Charge- offs			Recoveries		Provision (credit) for  loan losses			Balance at end of period
Commercial and industrial	$	1,875	$	-		$	45	$	(16	)	$	1,904	$	1,560	$	(492	)	$	343	$	587		$	1,998
Commercial real estate		7,019		-			10		261			7,290		6,777		-			7		568			7,352
Multifamily		4,688		-			-		835			5,523		4,018		-			-		449			4,467
Mixed use commercial		766		-			-		86			852		261		-			-		12			273
Real estate construction		386		-			-		2			388		383		-			-		(23	)		360
Residential mortgages		2,476		-			2		(268	)		2,210		3,027		-			11		(420	)		2,618
Home equity		639		(7	)		1		(56	)		577		709		-			2		17			728
Consumer		106		(58	)		2		47			97		166		(1	)		5		(15	)		155
Unallocated		2,730		-			-		(641	)		2,089		2,299		-			-		(925	)		1,374
Total	$	20,685	$	(65	)	$	60	$	250		$	20,930	$	19,200	$	(493	)	$	368	$	250		$	19,325

Summary of changes in the allowance for loan losses

Also in the tables below are total loans at March 31, 2016 and December 31, 2015 disaggregated by class and impairment methodology (in thousands).

	Allowance for Loan Losses						Loan Balances
March 31, 2016	Individually  evaluated for impairment		Collectively  evaluated for impairment		Ending balance		Individually  evaluated for  impairment		Collectively evaluated for impairment		Ending balance
Commercial and industrial	$	84	$	1,820	$	1,904	$	4,957	$	190,364	$	195,321
Commercial real estate		-		7,290		7,290		4,511		714,423		718,934
Multifamily		-		5,523		5,523		-		480,678		480,678
Mixed use commercial		-		852		852		-		83,421		83,421
Real estate construction		-		388		388		-		37,373		37,373
Residential mortgages		430		1,780		2,210		5,152		176,497		181,649
Home equity		143		434		577		1,645		43,802		45,447
Consumer		43		54		97		297		4,952		5,249
Unallocated		-		2,089		2,089		-		-		-
Total	$	700	$	20,230	$	20,930	$	16,562	$	1,731,510	$	1,748,072

	Allowance for Loan Losses						Loan Balances
December 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	$	-	$	1,875	$	1,875	$	2,872	$	186,897	$	189,769
Commercial real estate		-		7,019		7,019		4,334		692,453		696,787
Multifamily		-		4,688		4,688		-		426,549		426,549
Mixed use commercial		-		766		766		-		78,787		78,787
Real estate construction		-		386		386		-		37,233		37,233
Residential mortgages		559		1,917		2,476		5,817		180,496		186,313
Home equity		170		469		639		1,683		43,268		44,951
Consumer		48		58		106		379		5,679		6,058
Unallocated		-		2,730		2,730		-		-		-
Total	$	777	$	19,908	$	20,685	$	15,085	$	1,651,362	$	1,666,447

Summary of impaired loans

The following table presents the Company’s impaired loans disaggregated by class at March 31, 2016 and December 31, 2015 (in thousands).

	March 31, 2016						December 31, 2015
	Unpaid  Principal  Balance		Recorded Balance		Allowance Allocated		Unpaid Principal Balance		Recorded Balance		Allowance Allocated
With no allowance recorded:
Commercial and industrial	$	3,929	$	3,929	$	-	$	2,869	$	2,869	$	-
Commercial real estate		4,929		4,511		-		4,753		4,334		-
Residential mortgages		3,056		2,927		-		3,076		2,947		-
Home equity		1,300		1,300		-		1,233		1,233		-
Consumer		129		129		-		207		207		-
Subtotal		13,343		12,796		-		12,138		11,590		-
With an allowance recorded:
Commercial and industrial		1,028		1,028		84		3		3		-
Residential mortgages		2,225		2,225		430		2,870		2,870		559
Home equity		361		345		143		586		450		170
Consumer		168		168		43		172		172		48
Subtotal		3,782		3,766		700		3,631		3,495		777
Total	$	17,125	$	16,562	$	700	$	15,769	$	15,085	$	777

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, 2016 and 2015 (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,
	2016				2015
	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	$	2,875	$	18	$	4,551	$	33
Commercial real estate		4,319		35		10,208		50
Residential mortgages		5,693		48		5,411		38
Home equity		1,671		15		1,662		13
Consumer		338		4		383		3
Total	$	14,896	$	120	$	22,215	$	137

Troubled debt restructurings

Outstanding TDRs, disaggregated by class, at March 31, 2016 and December 31, 2015 are as follows (dollars in thousands):

	March 31, 2016				December 31, 2015
TDRs Outstanding	Number of  Loans		Outstanding Recorded  Balance		Number of Loans		Outstanding  Recorded  Balance
Commercial and industrial		16	$	988		17	$	1,116
Commercial real estate		5		4,080		5		4,131
Residential mortgages		22		4,625		22		4,653
Home equity		5		1,354		5		1,362
Consumer		8		296		8		301
Total		56	$	11,343		57	$	11,563

The following presents, disaggregated by class, information regarding TDRs executed during the three months ended March 31, 2016 and 2015 (dollars in thousands):

	Three Months Ended March 31,
	2016						2015
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
Residential mortgages		-		-		-		2		194		199
Total		-	$	-	$	-		3	$	206	$	211

Summarizes non-accrual loans by loan class

At March 31, 2016 and December 31, 2015, non-accrual loans disaggregated by class were as follows (dollars in thousands):

	March 31, 2016										December 31, 2015
	Non- accrual  loans		% of Total			Total Loans		% of Total Loans			Non- accrual loans		% of  Total			Total Loans		% of Total  Loans
Commercial and industrial	$	4,128		59.0	%	$	195,321		0.2	%	$	1,954		35.3	%	$	189,769		0.1	%
Commercial real estate		1,959		28.0			718,934		0.1			1,733		31.4			696,787		0.1
Multifamily		-		-			480,678		-			-		-			426,549		-
Mixed use commercial		-		-			83,421		-			-		-			78,787		-
Real estate construction		-		-			37,373		-			-		-			37,233		-
Residential mortgages		724		10.3			181,649		0.1			1,358		24.6			186,313		0.1
Home equity		186		2.7			45,447		-			406		7.3			44,951		-
Consumer		1		-			5,249		-			77		1.4			6,058		-
Total	$	6,998		100.0	%	$	1,748,072		0.4	%	$	5,528		100.0	%	$	1,666,447		0.3	%

Summary of current and past due loans

At March 31, 2016 and December 31, 2015, past due loans disaggregated by class were as follows (in thousands).

	Past Due
March 31, 2016	30 - 59 days			60 - 89 days			90 days and over			Total			Current			Total
Commercial and industrial	$	6		$	40		$	4,128		$	4,174		$	191,147		$	195,321
Commercial real estate		-			222			1,959			2,181			716,753			718,934
Multifamily		-			-			-			-			480,678			480,678
Mixed use commercial		-			-			-			-			83,421			83,421
Real estate construction		-			-			-			-			37,373			37,373
Residential mortgages		588			174			724			1,486			180,163			181,649
Home equity		200			-			186			386			45,061			45,447
Consumer		3			-			1			4			5,245			5,249
Total	$	797		$	436		$	6,998		$	8,231		$	1,739,841		$	1,748,072
% of Total Loans		0.1	%		0.0	%		0.4	%		0.5	%		99.5	%		100.0	%

	Past Due
December 31, 2015	30 - 59 days			60 - 89 days			90 days and over			Total			Current			Total
Commercial and industrial	$	21		$	-		$	1,954		$	1,975		$	187,794		$	189,769
Commercial real estate		-			-			1,733			1,733			695,054			696,787
Multifamily		-			-			-			-			426,549			426,549
Mixed use commercial		-			-			-			-			78,787			78,787
Real estate construction		-			-			-			-			37,233			37,233
Residential mortgages		512			175			1,358			2,045			184,268			186,313
Home equity		336			-			406			742			44,209			44,951
Consumer		2			-			77			79			5,979			6,058
Total	$	871		$	175		$	5,528		$	6,574		$	1,659,873		$	1,666,447
% of Total Loans		0.1	%		0.0	%		0.3	%		0.4	%		99.6	%		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, 2016 and December 31, 2015 (in thousands).

	March 31, 2016												December 31, 2015
	Grade												Grade
	Pass			Special mention			Substandard			Total			Pass			Special mention			Substandard			Total
Commercial and industrial	$	186,625		$	1,716		$	6,980		$	195,321		$	180,024		$	3,088		$	6,657		$	189,769
Commercial real estate		710,860			4,921			3,153			718,934			687,210			6,109			3,468			696,787
Multifamily		480,678			-			-			480,678			426,549			-			-			426,549
Mixed use commercial		83,421			-			-			83,421			78,779			-			8			78,787
Real estate construction		37,373			-			-			37,373			37,233			-			-			37,233
Residential mortgages		180,751			-			898			181,649			184,781			-			1,532			186,313
Home equity		45,261			-			186			45,447			44,545			-			406			44,951
Consumer		5,248			-			1			5,249			5,939			-			119			6,058
Total	$	1,730,217		$	6,637		$	11,218		$	1,748,072		$	1,645,060		$	9,197		$	12,190		$	1,666,447
% of Total		99.0	%		0.4	%		0.6	%		100.0	%		98.7	%		0.6	%		0.7	%		100.0	%

XML

STOCK-BASED COMPENSATION (Tables)

3 Months Ended

Mar. 31, 2016

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, 2016		185,100		$	15.73
Granted		-			-
Exercised		-			-
Forfeited or expired		(3,000	)	$	34.95
Outstanding, March 31, 2016		182,100		$	15.41

Summary of options outstanding and exercisable

The following summarizes shares subject to purchase from stock options outstanding and exercisable as of March 31, 2016:

		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		90,000	5.8 years	$	11.68		73,334	5.8 years	$	11.88
$	14.01 - $20.00		83,100	7.3 years	$	17.80		58,606	7.3 years	$	17.59
$	20.01 - $30.00		3,000	2.8 years	$	28.30		3,000	2.8 years	$	28.30
$	30.01 - $40.00		6,000	1.3 years	$	32.04		6,000	1.3 years	$	32.04
			182,100	6.3 years	$	15.41		140,940	6.2 years	$	15.46

Summary of restricted stock activity

A summary of restricted stock activity follows:

	Number of Shares			Weighted-Average Grant-Date Fair Value
Unvested, January 1, 2016		108,073		$	22.94
Granted		31,621		$	25.13
Vested		(15,682	)	$	22.76
Forfeited or expired		(50	)	$	25.13
Unvested, March 31, 2016		123,962		$	23.52

XML

REGULATORY MATTERS (Tables)

3 Months Ended

Mar. 31, 2016

REGULATORY MATTERS [Abstract]

The Bank's actual capital amounts and ratios

The Bank’s capital amounts (in thousands) and ratios are presented in the table that follows. The minimum amounts presented therein reference the minimums required by capital regulations and not the individual minimum capital ratios the Company expects the OCC to establish for the Bank.

	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, 2016
Total capital to risk-weighted assets	$	224,004		12.38	%	$	144,714		8.00	%	$	180,893		10.00	%
Tier 1 capital to risk-weighted assets		202,783		11.21	%		108,536		6.00	%		144,714		8.00	%
Common equity tier 1 capital to risk-weighted assets		202,783		11.21	%		81,402		4.50	%		117,580		6.50	%
Tier 1 capital to adjusted average assets (leverage)		202,783		9.30	%		87,228		4.00	%		109,036		5.00	%
December 31, 2015
Total capital to risk-weighted assets	$	219,562		12.66	%	$	138,716		8.00	%	$	173,395		10.00	%
Tier 1 capital to risk-weighted assets		198,587		11.45	%		104,037		6.00	%		138,716		8.00	%
Common equity tier 1 capital to risk-weighted assets		198,587		11.45	%		78,028		4.50	%		112,706		6.50	%
Tier 1 capital to adjusted average assets (leverage)		198,587		9.58	%		82,905		4.00	%		103,632		5.00	%

XML

FAIR VALUE (Tables)

3 Months Ended

Mar. 31, 2016

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, 2016				December 31, 2015
	Fair Value Hierarchy	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets:
Cash and due from banks	Level 1	$	117,186	$	117,186	$	98,086	$	98,086
Federal Reserve and Federal Home Loan Bank stock and other investments	Level 2		10,531		10,531		10,756		10,756
Investment securities held to maturity	Level 2		47,141		49,620		61,309		63,272
Investment securities available for sale	Level 2		249,263		249,263		247,099		247,099
Loans held for sale	Level 2		573		573		1,666		1,666
Loans, net of allowance	Level 2, 3 (1)		1,727,142		1,724,439		1,645,762		1,628,169
Accrued interest and loan fees receivable	Level 2		6,570		6,570		5,859		5,859
Financial Liabilities:
Non-maturity deposits	Level 2		1,640,528		1,640,528		1,555,980		1,555,980
Time deposits	Level 2		229,841		229,829		224,643		224,408
Borrowings	Level 2		160,000		160,146		165,000		164,827
Accrued interest payable	Level 2		196		196		198		198
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, 2016		Fair Value  Measurements Using Significant Unobservable  Inputs (Level 3)
Impaired loans	$	3,066	$	3,066
OREO		650		650
Total	$	3,716	$	3,716

Assets:	December 31, 2015		Fair Value  Measurements Using  Significant Unobservable  Inputs (Level 3)
Impaired loans	$	2,715	$	2,715
Total	$	2,715	$	2,715

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, 2016		December 31, 2015		Valuation Technique	Unobservable Inputs	Discount
Impaired loans:
Commercial and industrial	$	944	$	-	Advance rate against inventory and receivables	Discount to financial statement values	25% to 50%		(1)
Residential mortgages		1,795		2,311	Third party appraisal	Discount to appraised value		25%	(2)
Home equity		202		280	Third party appraisal	Discount to appraised value		25%	(2)
Consumer		125		124	Third party appraisal	Discount to appraised value		25%	(3)
Total	$	3,066	$	2,715
OREO	$	650	$	-	Third party appraisal	Estimated selling costs		N/A

(1) The Company makes adjustments 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.

(2) Of which estimated selling costs are approximately 9% - 15% of the total discount.

(3) Of which estimated selling costs are approximately 10% - 12% of the total discount.

Valuation of financial instruments measured at fair value on recurring basis

The following presents fair value measurements on a recurring basis at March 31, 2016 and December 31, 2015 (in thousands):

			Fair Value Measurements Using
Assets:	March 31, 2016		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government agency securities	$	25,972	$	25,972	$	-
Obligations of states and political subdivisions		98,112		98,112		-
Collateralized mortgage obligations		19,434		19,434		-
Mortgage-backed securities		96,955		96,955		-
Corporate bonds		8,790		8,790		-
Total	$	249,263	$	249,263	$	-
Liabilities:
Derivatives	$	752	$	-	$	752
Total	$	752	$	-	$	752

			Fair Value Measurements Using
Assets:	December 31, 2015		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs  (Level 3)
U.S. Government agency securities	$	28,516	$	28,516	$	-
Obligations of states and political subdivisions		104,682		104,682		-
Collateralized mortgage obligations		15,549		15,549		-
Mortgage-backed securities		92,442		92,442		-
Corporate bonds		5,910		5,910		-
Total	$	247,099	$	247,099	$	-
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,
	2016		2015
	Liabilities Derivatives		Liabilities Derivatives
Beginning balance	$	752	$	752
Net change		-		-
Ending balance	$	752	$	752

XML

BORROWINGS (Tables)

3 Months Ended

Mar. 31, 2016

BORROWINGS [Abstract]

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

The following summarizes borrowed funds at March 31, 2016 and December 31, 2015 (dollars in thousands):

As of or for the Three Months Ended March 31, 2016	Federal Home Loan Bank Borrowings Short-Term			Federal Home Loan Bank Borrowings Long-Term			Federal Funds Purchased
Daily average outstanding	$	119,407		$	15,000		$	-
Total interest cost		176			66			-
Average interest rate paid		0.58	%		1.76	%		-	%
Maximum amount outstanding at any month-end	$	160,000		$	15,000		$	-
Ending balance		145,000			15,000			-
Weighted-average interest rate on balances outstanding		0.49	%		1.76	%		-	%

As of or for the Year Ended December 31, 2015	Federal Home Loan Bank Borrowings Short-Term			Federal Home Loan Bank Borrowings Long-Term			Federal Funds Purchased
Daily average outstanding	$	63,935		$	10,808		$	3
Total interest cost		252			190			-
Average interest rate paid		0.39	%		1.76	%		0.45	%
Maximum amount outstanding at any month-end	$	155,000		$	15,000		$	-
Ending balance		150,000			15,000			-
Weighted-average interest rateon balances outstanding		0.52	%		1.76	%		-	%

XML

FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2016 USD ($) Corporation shares	Mar. 31, 2015 shares
Summary of Significant Accounting Policies [Abstract]
Ownership percentage	100.00%
Number of corporation used to acquire foreclosed real estate | Corporation	2
Weighted Average Number of Shares Outstanding Reconciliation [Abstract]
Weighted average common shares outstanding (in shares)	11,714,826	11,602,924
Weighted average unvested restricted shares (in shares)	114,369	91,503
Weighted average shares for basic earnings per share (in shares)	11,829,195	11,694,427
Additional diluted shares [Abstract]
Stock options (in shares)	71,613	68,672
Weighted average shares for diluted earnings per share (in shares)	11,900,808	11,763,099
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
Other Real Estate Owned (OREO) [Abstract]
Other real estae owned (OREO) acquired through forclosure | $	$ 650

XML

ACCUMULATED OTHER COMPREHENSIVE INCOME/LOSS ("AOCI") (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	$ (8,576)	$ (6,843)
Other comprehensive income before reclassifications	1,612	1,091
Amounts reclassified from AOCI	301	25
Net other comprehensive income	1,913	1,116
Ending balance	(6,663)	(5,727)
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net gain on sale of securities available for sale	6	26
Interest income - U.S. Government agency obligations	(418)	(541)
Subtotal, pre-tax	6,814	5,250
Income tax expense	1,976	1,241
Net income	(4,838)	(4,009)
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	6	26
Interest income - U.S. Government agency obligations	(488)	(68)
Subtotal, pre-tax	(482)	(42)
Income tax expense	181	17
Net income	(301)	(25)
Unrealized Gains and Losses on Available for Sale Securities [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	1,436	2,637
Other comprehensive income before reclassifications	1,612	1,091
Amounts reclassified from AOCI	(4)	(16)
Net other comprehensive income	1,608	1,075
Ending balance	3,044	3,712
Unrealized Losses on Securities Transferred from Available for Sale to Held to Maturity [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	(1,395)	(1,805)
Other comprehensive income before reclassifications	0	0
Amounts reclassified from AOCI	305	41
Net other comprehensive income	305	41
Ending balance	(1,090)	(1,764)
Pension and Post-Retirement Plan Items [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	(8,617)	(7,675)
Other comprehensive income before reclassifications	0	0
Amounts reclassified from AOCI	0	0
Net other comprehensive income	0	0
Ending balance	$ (8,617)	$ (7,675)

XML

INVESTMENT SECURITIES, Amortized Cost, Estimated Values and Gross Unrealized Gains and Losses (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2014	Mar. 31, 2016	Dec. 31, 2015
INVESTMENT SECURITIES [Abstract]
Investment securities transferred from available for sale to held to maturity, fair value	$ 48,000
Investment securities transferred from available for sale to held to maturity, unrealized gain (loss)	$ (3,200)
Available for sale [Abstract]
Total securities available for sale		$ 244,134	$ 244,706
Gross Unrealized Gains		5,498	4,510
Gross Unrealized Losses		(369)	(2,117)
Fair value		249,263	247,099
Held to maturity [Abstract]
Amortized Cost		47,141	61,309
Gross Unrealized Gains		2,479	1,993
Gross Unrealized Losses		0	(30)
Fair Value		49,620	63,272
Total investment securities [Abstract]
Total Amortized Cost		291,275	306,015
Total Gross Unrealized Gains		7,977	6,503
Total Gross Unrealized Losses		(369)	(2,147)
Total Fair Value		298,883	310,371
Investment securities pledged		251,000	261,000
U.S. Government Agency Securities [Member]
Available for sale [Abstract]
Total securities available for sale		25,982	28,977
Gross Unrealized Gains		9	2
Gross Unrealized Losses		(19)	(463)
Fair value		25,972	28,516
Obligations of States and Political Subdivisions [Member]
Available for sale [Abstract]
Total securities available for sale		93,877	100,215
Gross Unrealized Gains		4,235	4,467
Gross Unrealized Losses		0	0
Fair value		98,112	104,682
Collateralized Mortgage Obligations [Member]
Available for sale [Abstract]
Total securities available for sale		19,398	15,795
Gross Unrealized Gains		93	2
Gross Unrealized Losses		(57)	(248)
Fair value		19,434	15,549
Mortgage-Backed Securities [Member]
Available for sale [Abstract]
Total securities available for sale		95,877	93,719
Gross Unrealized Gains		1,161	39
Gross Unrealized Losses		(83)	(1,316)
Fair value		96,955	92,442
Corporate Bonds [Member]
Available for sale [Abstract]
Total securities available for sale		9,000	6,000
Gross Unrealized Gains		0	0
Gross Unrealized Losses		(210)	(90)
Fair value		8,790	5,910
U.S. Government Agency Securities [Member]
Held to maturity [Abstract]
Amortized Cost		29,513	43,570
Gross Unrealized Gains		1,836	1,450
Gross Unrealized Losses		0	0
Fair Value		31,349	45,020
Obligations of States and Political Subdivisions [Member]
Held to maturity [Abstract]
Amortized Cost		11,628	11,739
Gross Unrealized Gains		563	536
Gross Unrealized Losses		0	0
Fair Value		12,191	12,275
Corporate Bonds [Member]
Held to maturity [Abstract]
Amortized Cost		6,000	6,000
Gross Unrealized Gains		80	7
Gross Unrealized Losses		0	(30)
Fair Value		$ 6,080	$ 5,977

XML

INVESTMENT SECURITIES, Amortized Cost, Maturities and Approximate Fair Value (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Amortized Cost [Abstract]
Due in one year or less	$ 21,600
Due from one to five years	134,975
Due from five to ten years	87,559
Total securities available for sale	244,134		$ 244,706
Fair Value [Abstract]
Due in one year or less	21,838
Due from one to five years	139,088
Due from five to ten years	88,337
Total securities available for sale	249,263		247,099
Amortized Cost [Abstract]
Due in one year or less	836
Due from one to five years	4,191
Due from five to ten years	23,667
Due after ten years	18,447
Amortized Cost	47,141		61,309
Fair Value [Abstract]
Due in one year or less	843
Due from one to five years	4,405
Due from five to ten years	24,578
Due after ten years	19,794
Total securities held to maturity	49,620		63,272
Total Amortized Cost	291,275		306,015
Total Fair Value	298,883		310,371
Contingent liability from counterparty estimated future exposure from Visa litigation	752		752
Approximate cash payment per quarter for Visa litigation	74	$ 70
US Government agency securities held as available-for-sale pledged as collateral	$ 3,000		$ 3,000
Shares of Visa Class B securities held (in shares)	38,638		38,638

XML

INVESTMENT SECURITIES, Securities Sales And Continuous Unrealized Loss Position Of Securities Held (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Proceeds from sales of securities available for sale and the associated realized securities gains and losses [Abstract]
Proceeds	$ 0	$ 531
Gross realized gains	6	26
Gross realized losses	0	0
Net realized gains	6	$ 26
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	20,070		$ 94,259
Less than 12 months Unrealized Losses	(249)		(1,241)
12 months or longer Fair Value	22,013		35,906
12 months or longer Unrealized Losses	(120)		(906)
Total Fair Value	42,083		130,165
Total Unrealized Losses	(369)		(2,147)
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	4,965		16,744
Less than 12 months Unrealized Losses	(19)		(233)
12 months or longer Fair Value	0		9,770
12 months or longer Unrealized Losses	0		(230)
Total Fair Value	4,965		26,514
Total Unrealized Losses	(19)		(463)
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		1,831
Less than 12 months Unrealized Losses	0		(4)
12 months or longer Fair Value	8,286		8,200
12 months or longer Unrealized Losses	(57)		(244)
Total Fair Value	8,286		10,031
Total Unrealized Losses	(57)		(248)
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	9,315		66,804
Less than 12 months Unrealized Losses	(20)		(884)
12 months or longer Fair Value	13,727		17,936
12 months or longer Unrealized Losses	(63)		(432)
Total Fair Value	23,042		84,740
Total Unrealized Losses	(83)		(1,316)
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	5,790		8,880
Less than 12 months Unrealized Losses	(210)		(120)
12 months or longer Fair Value	0		0
12 months or longer Unrealized Losses	0		0
Total Fair Value	5,790		8,880
Total Unrealized Losses	$ (210)		$ (120)

XML

LOANS (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015	Mar. 31, 2015	Dec. 31, 2014
Categorized total loans [Abstract]
Gross loans	$ 1,748,072	$ 1,666,447
Allowance for loan losses	(20,930)	(20,685)	$ (19,325)	$ (19,200)
Net loans	1,727,142	1,645,762
Commercial and Industrial [Member]
Categorized total loans [Abstract]
Gross loans	195,321	189,769
Allowance for loan losses	(1,904)	(1,875)	(1,998)	(1,560)
Commercial Real Estate [Member]
Categorized total loans [Abstract]
Gross loans	718,934	696,787
Allowance for loan losses	(7,290)	(7,019)	(7,352)	(6,777)
Multifamily [Member]
Categorized total loans [Abstract]
Gross loans	480,678	426,549
Allowance for loan losses	(5,523)	(4,688)	(4,467)	(4,018)
Mixed Use Commercial [Member]
Categorized total loans [Abstract]
Gross loans	83,421	78,787
Allowance for loan losses	(852)	(766)	(273)	(261)
Real Estate Construction [Member]
Categorized total loans [Abstract]
Gross loans	37,373	37,233
Allowance for loan losses	(388)	(386)	(360)	(383)
Residential Mortgages [Member]
Categorized total loans [Abstract]
Gross loans	181,649	186,313
Allowance for loan losses	(2,210)	(2,476)	(2,618)	(3,027)
Loans in the process of foreclosure collateralized by residential real estate property	0
Home Equity [Member]
Categorized total loans [Abstract]
Gross loans	45,447	44,951
Allowance for loan losses	(577)	(639)	$ (728)	$ (709)
Consumer [Member]
Categorized total loans [Abstract]
Gross loans	5,249	6,058
Allowance for loan losses	$ (97)	$ (106)

XML

LOANS, Analysis of Changes in the Allowances for Loan Losses (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Allowance for loan losses [Abstract]
Balance at beginning of period	$ 20,685	$ 19,200
Charge-offs	(65)	(493)
Recoveries	60	368
(Credit) provision for loan losses	250	250
Balance at end of period	20,930	19,325
Commercial and Industrial [Member]
Allowance for loan losses [Abstract]
Balance at beginning of period	1,875	1,560
Charge-offs	0	(492)
Recoveries	45	343
(Credit) provision for loan losses	(16)	587
Balance at end of period	1,904	1,998
Commercial Real Estate [Member]
Allowance for loan losses [Abstract]
Balance at beginning of period	7,019	6,777
Charge-offs	0	0
Recoveries	10	7
(Credit) provision for loan losses	261	568
Balance at end of period	7,290	7,352
Multifamily [Member]
Allowance for loan losses [Abstract]
Balance at beginning of period	4,688	4,018
Charge-offs	0	0
Recoveries	0	0
(Credit) provision for loan losses	835	449
Balance at end of period	5,523	4,467
Mixed Use Commercial [Member]
Allowance for loan losses [Abstract]
Balance at beginning of period	766	261
Charge-offs	0	0
Recoveries	0	0
(Credit) provision for loan losses	86	12
Balance at end of period	852	273
Real Estate Construction [Member]
Allowance for loan losses [Abstract]
Balance at beginning of period	386	383
Charge-offs	0	0
Recoveries	0	0
(Credit) provision for loan losses	2	(23)
Balance at end of period	388	360
Residential Mortgages [Member]
Allowance for loan losses [Abstract]
Balance at beginning of period	2,476	3,027
Charge-offs	0	0
Recoveries	2	11
(Credit) provision for loan losses	(268)	(420)
Balance at end of period	2,210	2,618
Home Equity [Member]
Allowance for loan losses [Abstract]
Balance at beginning of period	639	709
Charge-offs	(7)	0
Recoveries	1	2
(Credit) provision for loan losses	(56)	17
Balance at end of period	577	728
Consumer [Member]
Allowance for loan losses [Abstract]
Balance at beginning of period	106	166
Charge-offs	(58)	(1)
Recoveries	2	5
(Credit) provision for loan losses	47	(15)
Balance at end of period	97	155
Unallocated [Member]
Allowance for loan losses [Abstract]
Balance at beginning of period	2,730	2,299
Charge-offs	0	0
Recoveries	0	0
(Credit) provision for loan losses	(641)	(925)
Balance at end of period	$ 2,089	$ 1,374

XML

LOANS, Loans and Allowance for Loan Losses Impairment Evaluations (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015	Mar. 31, 2015	Dec. 31, 2014
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	$ 700	$ 777
Ending balance: collectively evaluated for impairment	20,230	19,908
Ending balance	20,930	20,685	$ 19,325	$ 19,200
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	16,562	15,085
Ending balance: collectively evaluated for impairment	1,731,510	1,651,362
Total loans	1,748,072	1,666,447
Commercial and Industrial [Member]
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	84	0
Ending balance: collectively evaluated for impairment	1,820	1,875
Ending balance	1,904	1,875	1,998	1,560
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	4,957	2,872
Ending balance: collectively evaluated for impairment	190,364	186,897
Total loans	195,321	189,769
Commercial Real Estate [Member]
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	7,290	7,019
Ending balance	7,290	7,019	7,352	6,777
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	4,511	4,334
Ending balance: collectively evaluated for impairment	714,423	692,453
Total loans	718,934	696,787
Multifamily [Member]
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	5,523	4,688
Ending balance	5,523	4,688	4,467	4,018
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	480,678	426,549
Total loans	480,678	426,549
Mixed Use Commercial [Member]
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	852	766
Ending balance	852	766	273	261
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	83,421	78,787
Total loans	83,421	78,787
Real Estate Construction [Member]
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	388	386
Ending balance	388	386	360	383
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	37,373	37,233
Total loans	37,373	37,233
Residential Mortgages [Member]
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	430	559
Ending balance: collectively evaluated for impairment	1,780	1,917
Ending balance	2,210	2,476	2,618	3,027
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	5,152	5,817
Ending balance: collectively evaluated for impairment	176,497	180,496
Total loans	181,649	186,313
Home Equity [Member]
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	143	170
Ending balance: collectively evaluated for impairment	434	469
Ending balance	577	639	728	709
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	1,645	1,683
Ending balance: collectively evaluated for impairment	43,802	43,268
Total loans	45,447	44,951
Consumer [Member]
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	43	48
Ending balance: collectively evaluated for impairment	54	58
Ending balance	97	106
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	297	379
Ending balance: collectively evaluated for impairment	4,952	5,679
Total loans	5,249	6,058
Unallocated [Member]
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	2,089	2,730
Ending balance	2,089	2,730	$ 1,374	$ 2,299
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	0	0
Total loans	$ 0	$ 0

XML

LOANS, Summary of Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	$ 13,343		$ 12,138
Impaired loans with an allowance recorded, Unpaid Principal Balance	3,782		3,631
Impaired loans, Unpaid Principal Balance, Total	17,125		15,769
Impaired loans with no allowance recorded, Recorded Balance	12,796		11,590
Impaired loans with an allowance recorded, Recorded Balance	3,766		3,495
Impaired loans, Recorded Balance, Total	16,562		15,085
Impaired loans, No Allowance Allocated	0		0
Impaired loans, Allowance Allocated	700		777
Average recorded investment in impaired loans	14,896	$ 22,215
Interest income recognized on impaired loans	120	137
Commercial and Industrial [Member]
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	3,929		2,869
Impaired loans with an allowance recorded, Unpaid Principal Balance	1,028		3
Impaired loans with no allowance recorded, Recorded Balance	3,929		2,869
Impaired loans with an allowance recorded, Recorded Balance	1,028		3
Impaired loans, No Allowance Allocated	0		0
Impaired loans, Allowance Allocated	84		0
Average recorded investment in impaired loans	2,875	4,551
Interest income recognized on impaired loans	18	33
Commercial Real Estate [Member]
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	4,929		4,753
Impaired loans with no allowance recorded, Recorded Balance	4,511		4,334
Impaired loans, No Allowance Allocated	0		0
Average recorded investment in impaired loans	4,319	10,208
Interest income recognized on impaired loans	35	50
Residential Mortgages [Member]
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	3,056		3,076
Impaired loans with an allowance recorded, Unpaid Principal Balance	2,225		2,870
Impaired loans with no allowance recorded, Recorded Balance	2,927		2,947
Impaired loans with an allowance recorded, Recorded Balance	2,225		2,870
Impaired loans, No Allowance Allocated	0		0
Impaired loans, Allowance Allocated	430		559
Average recorded investment in impaired loans	5,693	5,411
Interest income recognized on impaired loans	48	38
Home Equity [Member]
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	1,300		1,233
Impaired loans with an allowance recorded, Unpaid Principal Balance	361		586
Impaired loans with no allowance recorded, Recorded Balance	1,300		1,233
Impaired loans with an allowance recorded, Recorded Balance	345		450
Impaired loans, No Allowance Allocated	0		0
Impaired loans, Allowance Allocated	143		170
Average recorded investment in impaired loans	1,671	1,662
Interest income recognized on impaired loans	15	13
Consumer [Member]
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	129		207
Impaired loans with an allowance recorded, Unpaid Principal Balance	168		172
Impaired loans with no allowance recorded, Recorded Balance	129		207
Impaired loans with an allowance recorded, Recorded Balance	168		172
Impaired loans, No Allowance Allocated	0		0
Impaired loans, Allowance Allocated	43		$ 48
Average recorded investment in impaired loans	338	383
Interest income recognized on impaired loans	$ 4	$ 3

XML

LOANS, Loans Modified as Troubled Debt Restructurings (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2016 USD ($) Loan	Mar. 31, 2015 USD ($) Loan	Dec. 31, 2015 USD ($) Loan
Financing Receivable, Modifications [Line Items]
Allocation of specific reserve regarding troubled debt restructuring	$ 494		$ 534
Troubled debt restructuring funds committed	$ 45		$ 45
Troubled debt restructuring at end of period [Abstract]
Number of Loans | Loan	56		57
Outstanding Recorded Balance	$ 11,343		$ 11,563
Troubled debt restructured during year [Abstract]
Number of Loans | Loan	0	3
Pre-Modification, Outstanding Recorded Balance	$ 0	$ 206
Post-modification, Outstanding Recorded Balance	0	211
Defaulted Troubled Debt Restructurings [Member]
Troubled debt restructured during year [Abstract]
Pre-Modification, Outstanding Recorded Balance	$ 0	$ 0
Commercial and Industrial [Member]
Troubled debt restructuring at end of period [Abstract]
Number of Loans | Loan	16		17
Outstanding Recorded Balance	$ 988		$ 1,116
Troubled debt restructured during year [Abstract]
Number of Loans | Loan	0	1
Pre-Modification, Outstanding Recorded Balance	$ 0	$ 12
Post-modification, Outstanding Recorded Balance	$ 0	$ 12
Commercial Real Estate [Member]
Troubled debt restructuring at end of period [Abstract]
Number of Loans | Loan	5		5
Outstanding Recorded Balance	$ 4,080		$ 4,131
Residential Mortgages [Member]
Troubled debt restructuring at end of period [Abstract]
Number of Loans | Loan	22		22
Outstanding Recorded Balance	$ 4,625		$ 4,653
Troubled debt restructured during year [Abstract]
Number of Loans | Loan	0	2
Pre-Modification, Outstanding Recorded Balance	$ 0	$ 194
Post-modification, Outstanding Recorded Balance	$ 0	$ 199
Home Equity [Member]
Troubled debt restructuring at end of period [Abstract]
Number of Loans | Loan	5		5
Outstanding Recorded Balance	$ 1,354		$ 1,362
Consumer [Member]
Troubled debt restructuring at end of period [Abstract]
Number of Loans | Loan	8		8
Outstanding Recorded Balance	$ 296		$ 301

XML

LOANS, Loans and Allowance for Loan Losses by Risk Rating (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual loans	$ 6,998		$ 5,528
Percentage of Total	100.00%		100.00%
Total Loans	$ 1,748,072		$ 1,666,447
Percentage of Total Loans	0.40%		0.30%
Additional interest income for the non-accrual loans outstanding at the end of the reported periods	$ 98	$ 180
Commercial and Industrial [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual loans	$ 4,128		$ 1,954
Percentage of Total	59.00%		35.30%
Total Loans	$ 195,321		$ 189,769
Percentage of Total Loans	0.20%		0.10%
Commercial Real Estate [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual loans	$ 1,959		$ 1,733
Percentage of Total	28.00%		31.40%
Total Loans	$ 718,934		$ 696,787
Percentage of Total Loans	0.10%		0.10%
Multifamily [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual loans	$ 0		$ 0
Percentage of Total	0.00%		0.00%
Total Loans	$ 480,678		$ 426,549
Percentage of Total Loans	0.00%		0.00%
Mixed Use Commercial [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual loans	$ 0		$ 0
Percentage of Total	0.00%		0.00%
Total Loans	$ 83,421		$ 78,787
Percentage of Total Loans	0.00%		0.00%
Real Estate Construction [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual loans	$ 0		$ 0
Percentage of Total	0.00%		0.00%
Total Loans	$ 37,373		$ 37,233
Percentage of Total Loans	0.00%		0.00%
Residential Mortgages [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual loans	$ 724		$ 1,358
Percentage of Total	10.30%		24.60%
Total Loans	$ 181,649		$ 186,313
Percentage of Total Loans	0.10%		0.10%
Home Equity [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual loans	$ 186		$ 406
Percentage of Total	2.70%		7.30%
Total Loans	$ 45,447		$ 44,951
Percentage of Total Loans	0.00%		0.00%
Consumer [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual loans	$ 1		$ 77
Percentage of Total	0.00%		1.40%
Total Loans	$ 5,249		$ 6,058
Percentage of Total Loans	0.00%		0.00%

XML

LOANS, Loans Current and Past Due by Aging Categories (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2016	Dec. 31, 2015
Summary of current and past due loans [Abstract]
Total past due	$ 8,231	$ 6,574
Current	1,739,841	1,659,873
Total loans	$ 1,748,072	$ 1,666,447
Percentage of Total Loans, Past Due	0.50%	0.40%
Percentage of Total Loans, Current	99.50%	99.60%
Percentage of Total Loans	100.00%	100.00%
30-59 Days Past Due [Member]
Summary of current and past due loans [Abstract]
Total past due	$ 797	$ 871
Percentage of Total Loans, Past Due	0.10%	0.10%
60-89 Days Past Due [Member]
Summary of current and past due loans [Abstract]
Total past due	$ 436	$ 175
Percentage of Total Loans, Past Due	0.00%	0.00%
90 Days and Over Past Due [Member]
Summary of current and past due loans [Abstract]
Total past due	$ 6,998	$ 5,528
Percentage of Total Loans, Past Due	0.40%	0.30%
Commercial and Industrial [Member]
Summary of current and past due loans [Abstract]
Total past due	$ 4,174	$ 1,975
Current	191,147	187,794
Total loans	195,321	189,769
Commercial and Industrial [Member] | 30-59 Days Past Due [Member]
Summary of current and past due loans [Abstract]
Total past due	6	21
Commercial and Industrial [Member] | 60-89 Days Past Due [Member]
Summary of current and past due loans [Abstract]
Total past due	40	0
Commercial and Industrial [Member] | 90 Days and Over Past Due [Member]
Summary of current and past due loans [Abstract]
Total past due	4,128	1,954
Commercial Real Estate [Member]
Summary of current and past due loans [Abstract]
Total past due	2,181	1,733
Current	716,753	695,054
Total loans	718,934	696,787
Commercial Real Estate [Member] | 30-59 Days Past Due [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Commercial Real Estate [Member] | 60-89 Days Past Due [Member]
Summary of current and past due loans [Abstract]
Total past due	222	0
Commercial Real Estate [Member] | 90 Days and Over Past Due [Member]
Summary of current and past due loans [Abstract]
Total past due	1,959	1,733
Multifamily [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Current	480,678	426,549
Total loans	480,678	426,549
Multifamily [Member] | 30-59 Days Past Due [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Multifamily [Member] | 60-89 Days Past Due [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Multifamily [Member] | 90 Days and Over Past Due [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Mixed Use Commercial [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Current	83,421	78,787
Total loans	83,421	78,787
Mixed Use Commercial [Member] | 30-59 Days Past Due [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Mixed Use Commercial [Member] | 60-89 Days Past Due [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Mixed Use Commercial [Member] | 90 Days and Over Past Due [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Real Estate Construction [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Current	37,373	37,233
Total loans	37,373	37,233
Real Estate Construction [Member] | 30-59 Days Past Due [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Real Estate Construction [Member] | 60-89 Days Past Due [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Real Estate Construction [Member] | 90 Days and Over Past Due [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Residential Mortgages [Member]
Summary of current and past due loans [Abstract]
Total past due	1,486	2,045
Current	180,163	184,268
Total loans	181,649	186,313
Residential Mortgages [Member] | 30-59 Days Past Due [Member]
Summary of current and past due loans [Abstract]
Total past due	588	512
Residential Mortgages [Member] | 60-89 Days Past Due [Member]
Summary of current and past due loans [Abstract]
Total past due	174	175
Residential Mortgages [Member] | 90 Days and Over Past Due [Member]
Summary of current and past due loans [Abstract]
Total past due	724	1,358
Home Equity [Member]
Summary of current and past due loans [Abstract]
Total past due	386	742
Current	45,061	44,209
Total loans	45,447	44,951
Home Equity [Member] | 30-59 Days Past Due [Member]
Summary of current and past due loans [Abstract]
Total past due	200	336
Home Equity [Member] | 60-89 Days Past Due [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Home Equity [Member] | 90 Days and Over Past Due [Member]
Summary of current and past due loans [Abstract]
Total past due	186	406
Consumer [Member]
Summary of current and past due loans [Abstract]
Total past due	4	79
Current	5,245	5,979
Total loans	5,249	6,058
Consumer [Member] | 30-59 Days Past Due [Member]
Summary of current and past due loans [Abstract]
Total past due	3	2
Consumer [Member] | 60-89 Days Past Due [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Consumer [Member] | 90 Days and Over Past Due [Member]
Summary of current and past due loans [Abstract]
Total past due	$ 1	$ 77

XML

LOANS, Loans by Internal Assigned Grade for Credit Risk (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Dec. 31, 2015
Financing Receivable, Impaired [Line Items]
Number of consecutive years	5 years
Minimum repayment period	2 years
Threshold loan amount for annual rating review	$ 750
Credit risk profile by internally assigned grade [Abstract]
Total	$ 1,748,072	$ 1,666,447
Percentage of Total Loans	100.00%	100.00%
Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	$ 1,730,217	$ 1,645,060
Percentage of Total Loans	99.00%	98.70%
Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	$ 6,637	$ 9,197
Percentage of Total Loans	0.40%	0.60%
Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	$ 11,218	$ 12,190
Percentage of Total Loans	0.60%	0.70%
Commercial and Industrial [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	$ 195,321	$ 189,769
Commercial and Industrial [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	186,625	180,024
Commercial and Industrial [Member] | Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	1,716	3,088
Commercial and Industrial [Member] | Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	6,980	6,657
Commercial Real Estate [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	718,934	696,787
Commercial Real Estate [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	710,860	687,210
Commercial Real Estate [Member] | Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	4,921	6,109
Commercial Real Estate [Member] | Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	3,153	3,468
Multifamily [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	480,678	426,549
Multifamily [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	480,678	426,549
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	83,421	78,787
Mixed Use Commercial [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	83,421	78,779
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	0	8
Real Estate Construction [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	37,373	37,233
Real Estate Construction [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	37,373	37,233
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	181,649	186,313
Residential Mortgages [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	180,751	184,781
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	898	1,532
Home Equity [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	45,447	44,951
Home Equity [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	45,261	44,545
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	186	406
Consumer [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	5,249	6,058
Consumer [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	5,248	5,939
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	$ 1	$ 119

XML

RETIREMENT PLAN (Details) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended		12 Months Ended
	Dec. 31, 2015	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2012
RETIREMENT PLAN [Abstract]
Additional minimum required contribution for the pension plan				$ 0
Net periodic pension credit		$ (13)	$ (111)
Optional required contribution for pension plan	$ 1,000
Minimum required contribution for the pension plan		$ 0

XML

STOCK-BASED COMPENSATION (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total cash received from option exercises	$ 0	$ 19
Number of Shares [Roll Forward]
Exercised (in shares)	0	(1,000)
Additional Disclosures [Abstract]
Compensation expense	$ 224	$ 222
Summary of options outstanding and exercisable [Abstract]
Shares Outstanding (in shares)	182,100
Weighted-Average Remaining Contractual Life, Outstanding	6 years 3 months 18 days
Weighted-Average Exercise Price, Outstanding (in dollars per share)	$ 15.41
Shares Exercisable (in shares)	140,940
Weighted-Average Remaining Contractual Life, Exercisable	6 years 2 months 12 days
Weighted-Average Exercise Price, Exercisable (in dollars per share)	$ 15.46
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
Weighted-Average Exercise Price [Roll Forward]
Fair value of restricted stock awards vested	$ 357
Shares withheld to pay taxes (in shares)	3,898
Number of Shares [Roll Forward]
Outstanding at Beginning (in shares)	108,073
Granted (in shares)	31,621	51,562
Vested (in shares)	(15,682)	0
Forfeited or expired (in shares)	(50)
Outstanding at Ending (in shares)	123,962
Weighted Average Grant-Date Fair Value [Roll Forward]
Outstanding at beginning (in dollars per shares)	$ 22.94
Granted (in dollars per share)	25.13
Vested (in dollars per share)	22.76
Forfeited or expired (in dollars per share)	25.13
Outstanding at ending (in dollars per share)	$ 23.52
Additional Disclosures [Abstract]
Remaining unrecognized compensation cost	$ 2,100
Remaining unrecognized compensation cost remaining vesting period	1 year 10 months 24 days
Employee Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options exercise period	3 years	3 years
Vesting rate	0.33333	0.33333
Percentage of options granted exercisable			100.00%
Total intrinsic value of options exercised	$ 0	$ 6
Total cash received from option exercises		$ 19
Common stock, new shares (in shares)		1,000
Number of Shares [Roll Forward]
Outstanding at beginning (in shares)	185,100
Granted (in shares)	0
Exercised (in shares)	0
Forfeited or expired (in shares)	(3,000)
Outstanding at ending (in shares)	182,100
Weighted-Average Exercise Price [Roll Forward]
Outstanding at beginning (in dollars per share)	$ 15.73
Granted (in dollars per share)	0
Exercised (in dollars per share)	0
Forfeited or expired (in dollars per share)	34.95
Outstanding at ending (in dollars per share)	$ 15.41
Maximum [Member] | Employee Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options exercise period	10 years
2009 Stock Incentive Plan [Member]
Additional Disclosures [Abstract]
Company's common stock reserved for issuance (in shares)	500,000
Common stock available for possible issuance (in shares)	135,257
2009 Stock Incentive Plan [Member] | Employee Stock Options [Member]
Additional Disclosures [Abstract]
Remaining unrecognized compensation cost	$ 40
Remaining unrecognized compensation cost remaining vesting period	7 months 6 days
1999 Stock Incentive Plan [Member]
Additional Disclosures [Abstract]
Company's common stock reserved for issuance (in shares)	0
$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)	90,000
Weighted-Average Remaining Contractual Life, Outstanding	5 years 9 months 18 days
Weighted-Average Exercise Price, Outstanding (in dollars per share)	$ 11.68
Shares Exercisable (in shares)	73,334
Weighted-Average Remaining Contractual Life, Exercisable	5 years 9 months 18 days
Weighted-Average Exercise Price, Exercisable (in dollars per share)	$ 11.88
$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)	83,100
Weighted-Average Remaining Contractual Life, Outstanding	7 years 3 months 18 days
Weighted-Average Exercise Price, Outstanding (in dollars per share)	$ 17.80
Shares Exercisable (in shares)	58,606
Weighted-Average Remaining Contractual Life, Exercisable	7 years 3 months 18 days
Weighted-Average Exercise Price, Exercisable (in dollars per share)	$ 17.59
$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)	3,000
Weighted-Average Remaining Contractual Life, Outstanding	2 years 9 months 18 days
Weighted-Average Exercise Price, Outstanding (in dollars per share)	$ 28.30
Shares Exercisable (in shares)	3,000
Weighted-Average Remaining Contractual Life, Exercisable	2 years 9 months 18 days
Weighted-Average Exercise Price, Exercisable (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)	6,000
Weighted-Average Remaining Contractual Life, Outstanding	1 year 3 months 18 days
Weighted-Average Exercise Price, Outstanding (in dollars per share)	$ 32.04
Shares Exercisable (in shares)	6,000
Weighted-Average Remaining Contractual Life, Exercisable	1 year 3 months 18 days
Weighted-Average Exercise Price, Exercisable (in dollars per share)	$ 32.04

XML

INCOME TAXES (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Operating Loss Carryforwards [Line Items]
Unrecognized tax benefits	$ 0	$ 34
New York State [Member]
Operating Loss Carryforwards [Line Items]
Net operating loss carryforwards	10,600
Valuation allowance	$ 471
Operating loss carryforwards, expiration dates	Dec. 31, 2032

XML

REGULATORY MATTERS (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Capital buffer of common equity tier 1 capital minimum capital requirements [Abstract]
Capital buffer of common equity tier 1 capital minimum capital requirement - 2016	0.625%
Capital buffer of common equity tier 1 capital minimum capital requirements - 2017	1.25%
Capital buffer of common equity tier 1 capital minimum capital requirements - 2018	1.875%
Capital buffer of common equity tier 1 capital minimum capital requirements - 2019 and thereafter	2.50%
Total capital to risk-weighted assets [Abstract]
Actual capital ratios, Amount	$ 224,004	$ 219,562
Minimum for capital adequacy, Amount	144,714	138,716
Minimum to be Well Capitalized under prompt corrective action provisions, Amount	$ 180,893	$ 173,395
Total capital to risk-weighted assets Ratios [Abstract]
Actual capital ratios, Ratio	12.38%	12.66%
Minimum for capital adequacy, Ratio	8.00%	8.00%
Minimum to be Well Capitalized under prompt corrective action provisions, Ratio	10.00%	10.00%
Tier 1 capital to risk-weighted assets [Abstract]
Actual capital ratios, Amount	$ 202,783	$ 198,587
Minimum for capital adequacy, Amount	108,536	104,037
Minimum to be Well Capitalized under prompt corrective action provisions, Amount	$ 144,714	$ 138,716
Tier 1 Capital to risk-weighted assets, Ratio [Abstract]
Actual capital ratios, Ratio	11.21%	11.45%
Minimum for capital adequacy, Ratio	6.00%	6.00%
Minimum to be Well Capitalized under prompt corrective action provisions, Ratio	8.00%	8.00%
Common equity tier 1 capital to risk-weighted assets [Abstract]
Actual capital ratios, Amount	$ 202,783	$ 198,587
Minimum for capital adequacy, Amount	81,402	78,028
Minimum to be Well Capitalized under prompt corrective action provisions, Amount	$ 117,580	$ 112,706
Common equity tier 1 capital to risk-weighted assets, Ratio [Abstract]
Actual capital ratios, Ratio	11.21%	11.45%
Minimum for capital adequacy, Ratio	4.50%	4.50%
Minimum to be Well Capitalized under prompt corrective action provisions, Ratio	6.50%	6.50%
Tier 1 capital to adjusted average assets (leverage) [Abstract]
Actual capital ratios, Amount	$ 202,783	$ 198,587
Minimum for capital adequacy, Amount	87,228	82,905
Minimum to be Well Capitalized under prompt corrective action provisions, Amount	$ 109,036	$ 103,632
Tier 1 capital to adjusted average assets (leverage) Ratios [Abstract]
Actual capital ratios, Ratio	9.30%	9.58%
Minimum for capital adequacy, Ratio	4.00%	4.00%
Minimum to be Well Capitalized under prompt corrective action provisions, Ratio	5.00%	5.00%
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Tier 1 leverage capital ratio	9.30%	9.58%
Tier 1 risk-based capital ratio	11.21%	11.45%
Common equity tier 1 risk-based capital ratio	11.21%	11.45%
Total risk-based capital ratio	12.38%	12.66%
Parent Company [Member]
Total capital to risk-weighted assets Ratios [Abstract]
Actual capital ratios, Ratio	12.65%	12.89%
Tier 1 Capital to risk-weighted assets, Ratio [Abstract]
Actual capital ratios, Ratio	11.48%	11.68%
Common equity tier 1 capital to risk-weighted assets, Ratio [Abstract]
Actual capital ratios, Ratio	11.48%	11.68%
Tier 1 capital to adjusted average assets (leverage) Ratios [Abstract]
Actual capital ratios, Ratio	9.52%	9.77%
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Tier 1 leverage capital ratio	9.52%	9.77%
Tier 1 risk-based capital ratio	11.48%	11.68%
Common equity tier 1 risk-based capital ratio	11.48%	11.68%
Total risk-based capital ratio	12.65%	12.89%

XML

FAIR VALUE, Balance Sheets Grouping (Details) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2016	Dec. 31, 2015
Financial Assets [Abstract]
Investment securities held to maturity		$ 49,620	$ 63,272
Investment securities available for sale		249,263	247,099
Financial Liabilities [Abstract]
Borrowings		$ 160,000	165,000
Percentage of derivative in net sale proceeds		10.00%
Carrying Amount [Member] | Level 1 [Member]
Financial Assets [Abstract]
Cash and due from banks		$ 117,186	98,086
Carrying Amount [Member] | Level 2 [Member]
Financial Assets [Abstract]
Federal Reserve and Federal Home Loan Bank Stock and other investments		10,531	10,756
Investment securities held to maturity		47,141	61,309
Investment securities available for sale		249,263	247,099
Loans held for sale		573	1,666
Accrued interest and loan fees receivable		6,570	5,859
Financial Liabilities [Abstract]
Non-maturity deposits		1,640,528	1,555,980
Time deposits		229,841	224,643
Borrowings		160,000	165,000
Accrued interest payable		196	198
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]	1,727,142	1,645,762
Fair Value [Member] | Level 1 [Member]
Financial Assets [Abstract]
Cash and due from banks		117,186	98,086
Fair Value [Member] | Level 2 [Member]
Financial Assets [Abstract]
Federal Reserve and Federal Home Loan Bank Stock and other investments		10,531	10,756
Investment securities held to maturity		49,620	63,272
Investment securities available for sale		249,263	247,099
Loans held for sale		573	1,666
Accrued interest and loan fees receivable		6,570	5,859
Financial Liabilities [Abstract]
Non-maturity deposits		1,640,528	1,555,980
Time deposits		229,829	224,408
Borrowings		160,146	164,827
Accrued interest payable		196	198
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]	$ 1,724,439	$ 1,628,169

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

XML

FAIR VALUE, Non-recurring Basis (Details) - Fair Value, Measurements, Nonrecurring [Member] - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Assets measured at fair value on a non-recurring basis [Abstract]
Impaired loans	$ 3,066	$ 2,715
OREO	650
Total	3,716	2,715
Significant Unobservable Inputs (Level 3) [Member]
Assets measured at fair value on a non-recurring basis [Abstract]
Impaired loans	3,066	2,715
OREO	650
Total	$ 3,716	$ 2,715

XML

FAIR VALUE, Non-recurring Basis, Quantitative Information (Details) - Level 3 [Member] - USD ($) $ in Thousands		Mar. 31, 2016	Dec. 31, 2015
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Total		$ 3,066	$ 2,715
Advance Rate Against Inventory and Receivables [Member] | Commercial and Industrial [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Total		$ 944	0
Advance Rate Against Inventory and Receivables [Member] | Commercial and Industrial [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount to appraised value	[1]	25.00%
Advance Rate Against Inventory and Receivables [Member] | Commercial and Industrial [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount to appraised value	[1]	50.00%
Third Party Appraisal [Member] | Residential Mortgages [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Total		$ 1,795	$ 2,311
Discount to appraised value	[2]	25.00%	25.00%
Third Party Appraisal [Member] | Residential Mortgages [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Estimated selling costs		9.00%	9.00%
Third Party Appraisal [Member] | Residential Mortgages [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Estimated selling costs		15.00%	15.00%
Third Party Appraisal [Member] | Home Equity [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Total		$ 202	$ 280
Discount to appraised value	[2]	25.00%	25.00%
Third Party Appraisal [Member] | Home Equity [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Estimated selling costs		9.00%	9.00%
Third Party Appraisal [Member] | Home Equity [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Estimated selling costs		15.00%	15.00%
Third Party Appraisal [Member] | Consumer [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Total		$ 125	$ 124
Discount to appraised value	[3]	25.00%	25.00%
Third Party Appraisal [Member] | Consumer [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Estimated selling costs		10.00%	10.00%
Third Party Appraisal [Member] | Consumer [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Estimated selling costs		12.00%	12.00%
Third Party Appraisal [Member] | OREO [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Total		$ 650	$ 0

[1] The Company makes adjustments 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.

[2] Of which estimated selling costs are approximately 9% - 15% of the total discount.

[3] Of which estimated selling costs are approximately 10% - 12% of the total discount.

XML

FAIR VALUE, Recurring Basis (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Assets [Abstract]
Total securities available for sale	$ 249,263	$ 247,099
Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
U.S. Government agency securities	25,972	28,516
Obligations of states and political subdivisions	98,112	104,682
Collateralized mortgage obligations	19,434	15,549
Mortgage-backed securities	96,955	92,442
Corporate bonds	8,790	5,910
Total securities available for sale	249,263	247,099
Liabilities [Abstract]
Derivatives	752	752
Total	752	752
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets [Abstract]
U.S. Government agency securities	25,972	28,516
Obligations of states and political subdivisions	98,112	104,682
Collateralized mortgage obligations	19,434	15,549
Mortgage-backed securities	96,955	92,442
Corporate bonds	8,790	5,910
Total securities available for sale	249,263	247,099
Liabilities [Abstract]
Derivatives	0	0
Total	0	0
Fair Value, Measurements, Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets [Abstract]
U.S. Government agency securities	0	0
Obligations of states and political subdivisions	0	0
Collateralized mortgage obligations	0	0
Mortgage-backed securities	0	0
Corporate bonds	0	0
Total securities available for sale	0	0
Liabilities [Abstract]
Derivatives	752	752
Total	$ 752	$ 752

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	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) [Rollforward]
Beginning balance	$ 752	$ 752
Net change	0	0
Ending balance	$ 752	$ 752

XML

BORROWINGS (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2016	Dec. 31, 2015
Debt Instrument [Line Items]
Assets pledged as collateral to the Federal Home Loan Bank	$ 713,000	$ 746,000
Federal Home Loan Bank borrowings	160,000	165,000
Federal Home Loan Bank Borrowings Short-Term [Member]
Debt Instrument [Line Items]
Daily average outstanding	119,407	63,935
Total interest cost	$ 176	$ 252
Average interest rate paid	0.58%	0.39%
Maximum amount outstanding at any month-end	$ 160,000	$ 155,000
Ending balance	$ 145,000	$ 150,000
Weighted-average interest rate on balances outstanding	0.49%	0.52%
Federal Home Loan Bank Borrowings Long-Term [Member]
Debt Instrument [Line Items]
Daily average outstanding	$ 15,000	$ 10,808
Total interest cost	$ 66	$ 190
Average interest rate paid	1.76%	1.76%
Maximum amount outstanding at any month-end	$ 15,000	$ 15,000
Ending balance	$ 15,000	$ 15,000
Weighted-average interest rate on balances outstanding	1.76%	1.76%
Federal Funds Purchased [Member]
Debt Instrument [Line Items]
Daily average outstanding	$ 0	$ 3
Total interest cost	$ 0	$ 0
Average interest rate paid	0.00%	0.45%
Maximum amount outstanding at any month-end	$ 0	$ 0
Ending balance	$ 0	$ 0
Weighted-average interest rate on balances outstanding	0.00%	0.00%