10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2013

OR

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

For the transition period from ____ to ____.

Commission File Number 1-12431

Unity Bancorp, Inc.

(Exact name of registrant as specified in its charter)

New Jersey	22-3282551
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
64 Old Highway 22, Clinton, NJ	08809
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code(908) 730-7630

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, as amended, 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 xNo o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act):

Large accelerated filer o   Accelerated filer o   Nonaccelerated filer o   Smaller reporting company x

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

Yes oNo x

The number of shares outstanding of each of the registrant’s classes of common equity stock, as of May 1, 2013 common stock, no par value: 7,548,174 shares outstanding

Table of Contents

PART I	CONSOLIDATED FINANCIAL INFORMATION	Page #
ITEM 1	Consolidated Financial Statements (Unaudited)
	Consolidated Balance Sheets at March 31, 2013 and December 31, 2012	3
	Consolidated Statements of Income for the threemonths ended March 31, 2013 and 2012	4
	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2013 and 2012	5
	Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2013 and 2012	6
	Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and  2012	7
	Notes to the Consolidated Financial Statements	8
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
ITEM 3	Quantitative and Qualitative Disclosures about Market Risk	45
ITEM 4	Controls and Procedures	45
PART II	OTHER INFORMATION	46
ITEM 1	Legal Proceedings	46
ITEM 1A	Risk Factors	46
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	46
ITEM 3	Defaults upon Senior Securities	46
ITEM 4	Mine Safety Disclosures	46
ITEM 5	Other Information	46
ITEM 6	Exhibits	46
	SIGNATURES	47
	EXHIBIT INDEX	48
	Exhibit 31.1	49
	Exhibit 31.2	50
	Exhibit 32.1	51

2

PART ICONSOLIDATED FINANCIAL INFORMATION

ITEM 1Consolidated Financial Statements (Unaudited)

Unity Bancorp, Inc.

Consolidated Balance Sheets

(Unaudited)

(In thousands)	March 31, 2013		December 31, 2012
ASSETS
Cash and due from banks	$	18,392	$	23,705
Federal funds sold and interest-bearing deposits		61,584		70,487
Cash and cash equivalents		79,976		94,192
Securities:
Securities available for sale		91,067		89,538
Securities held to maturity (fair value of $28,859 and $22,741, respectively)		28,267		21,515
Total securities		119,334		111,053
Loans:
SBA loans held for sale		6,556		6,937
SBA loans held to maturity		56,868		58,593
SBA 504 loans		39,784		41,438
Commercial loans		310,649		301,564
Residential mortgage loans		136,345		132,094
Consumer loans		46,369		46,410
Total loans		596,571		587,036
Allowance for loan losses		(14,345)		(14,758)
Net loans		582,226		572,278
Premises and equipment, net		15,747		12,062
Bank owned life insurance ("BOLI")		9,472		9,402
Deferred tax assets		6,241		5,954
Federal Home Loan Bank stock		3,989		3,989
Accrued interest receivable		3,362		3,298
Other real estate owned ("OREO")		1,052		1,826
Prepaid FDIC insurance		1,788		1,929
Goodwill and other intangibles		1,516		1,516
Other assets		2,479		2,231
Total assets	$	827,182	$	819,730
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand deposits	$	118,166	$	114,424
Interest-bearing demand deposits		115,374		114,838
Savings deposits		295,335		294,533
Time deposits, under $100,000		75,374		76,994
Time deposits, $100,000 and over		47,868		47,971
Total deposits		652,117		648,760
Borrowed funds		75,000		75,000
Subordinated debentures		15,465		15,465
Accrued interest payable		438		434
Accrued expenses and other liabilities		6,005		2,561
Total liabilities		749,025		742,220
Commitments and contingencies		-		-
Shareholders' equity:
Cumulative perpetual preferred stock		20,263		20,115
Common stock		54,357		54,274
Retained earnings		2,584		1,788
Accumulated other comprehensive income		953		1,333
Total shareholders' equity		78,157		77,510
Total liabilities and shareholders' equity	$	827,182	$	819,730
Preferred shares		21		21
Issued and outstanding common shares		7,548		7,534
The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.

3

Unity Bancorp, Inc.

Consolidated Statements of Income

(Unaudited)

	For the three months ended March 31,
(In thousands, except per share amounts)	2013		2012
INTEREST INCOME
Federal funds sold and interest-bearing deposits	$	14	$	32
Federal Home Loan Bank stock		44		51
Securities:
Taxable		647		752
Tax-exempt		120		142
Total securities		767		894
Loans:
SBA loans		777		924
SBA 504 loans		651		759
Commercial loans		4,001		4,183
Residential mortgage loans		1,550		1,655
Consumer loans		509		560
Total loans		7,488		8,081
Total interest income		8,313		9,058
INTEREST EXPENSE
Interest-bearing demand deposits		101		136
Savings deposits		177		354
Time deposits		546		913
Borrowed funds and subordinated debentures		800		847
Total interest expense		1,624		2,250
Net interest income		6,689		6,808
Provision for loan losses		650		1,200
Net interest income after provision for loan losses		6,039		5,608
NONINTEREST INCOME
Branch fee income		347		386
Service and loan fee income		304		302
Gain on sale of SBA loans held for sale, net		241		157
Gain on sale of mortgage loans, net		477		411
BOLI income		70		73
Net security gains		226		224
Other income		160		162
Total noninterest income		1,825		1,715
NONINTEREST EXPENSE
Compensation and benefits		3,176		3,182
Occupancy		694		609
Processing and communications		561		534
Furniture and equipment		365		362
Professional services		190		190
Loan collection costs		177		180
OREO expenses		127		124
Deposit insurance		149		171
Advertising		120		146
Other expenses		567		461
Total noninterest expense		6,126		5,959
Income before provision for income taxes		1,738		1,364
Provision for income taxes		538		459
Net income		1,200		905
Preferred stock dividends and discount accretion		404		396
Income available to common shareholders	$	796	$	509
Net income per common share - Basic	$	0.11	$	0.07
Net income per common share - Diluted	$	0.10	$	0.07
Weighted average common shares outstanding - Basic		7,538		7,460
Weighted average common shares outstanding - Diluted		7,845		7,792
The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.

4

Unity Bancorp, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)

	For the three months ended March 31,
(In thousands)	2013		2012
Net income	$	1,200	$	905
Other comprehensive loss, net of tax:
Unrealized holding losses on securities arising during period		(230)		(154)
Less: Reclassification adjustment for gains on securities included in net income		150		149
Total other comprehensive loss		(380)		(303)
Total comprehensive income	$	820	$	602
The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.

5

Unity Bancorp, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

For the three months ended March 31, 2013 and 2012

(Unaudited)

			Common stock						Accumulated other		Total
(In thousands)	Preferred stock		Shares		Amount		Retained earnings		comprehensive income		shareholders' equity
Balance, December 31, 2012	$	20,115		7,534	$	54,274	$	1,788	$	1,333	$	77,510
Net income								1,200				1,200
Other comprehensive loss, net of tax										(380)		(380)
Accretion of discount on preferred stock		148						(148)				-
Dividends on preferred stock (5% annually)								(256)				(256)
Common stock issued and related tax effects (1)				14		83						83
Balance, March 31, 2013	$	20,263		7,548	$	54,357	$	2,584	$	953	$	78,157

			Common stock						Accumulated other		Total
(In thousands)	Preferred stock		Shares		Amount		Accumulated deficit		comprehensive income		shareholders' equity
Balance, December 31, 2011	$	19,545		7,459	$	53,746	$	(854)	$	1,121	$	73,558
Net income								905				905
Other comprehensive loss, net of tax										(303)		(303)
Accretion of discount on preferred stock		138						(138)				-
Dividends on preferred stock (5% annually)								(258)				(258)
Common stock issued and related tax effects (1)				4		100						100
Balance, March 31, 2012	$	19,683		7,463	$	53,846	$	(345)	$	818	$	74,002
(1) Includes the issuance of common stock under employee benefit plans, which includes nonqualified stock options and restricted stock expense related entries, employee option exercises and the tax benefit of options exercised.
The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.

6

Unity Bancorp, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

	For the three months ended March 31,
(In thousands)	2013		2012
OPERATING ACTIVITIES:
Net income	$	1,200	$	905
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		650		1,200
Net amortization of purchase premiums and discounts on securities		208		217
Depreciation and amortization		365		270
Deferred income tax benefit		(32)		(36)
Net security gains		(226)		(224)
Stock compensation expense		83		83
Loss on sale of OREO		-		117
Valuation writedowns on OREO		70		-
Gain on sale of mortgage loans held for sale, net		(477)		(411)
Gain on sale of SBA loans held for sale, net		(241)		(157)
Origination of mortgage loans held for sale		(22,599)		(21,242)
Origination of SBA loans held for sale		(1,911)		(2,240)
Proceeds from sale of mortgage loans held for sale, net		23,076		21,653
Proceeds from sale of SBA loans held for sale, net		2,533		2,050
Loss on sale or disposal of premises and equipment		-		17
Net change in other assets and liabilities		(674)		200
Net cash provided by operating activities		2,025		2,402
INVESTING ACTIVITIES
Purchases of securities held to maturity		(8,252)		-
Purchases of securities available for sale		(13,086)		(32,108)
Maturities and principal payments on securities held to maturity		1,446		855
Maturities and principal payments on securities available for sale		5,692		7,363
Proceeds from sales of securities available for sale		5,303		2,824
Proceeds from sale of OREO		704		1,640
Net decrease (increase) in loans		(11,051)		8,596
Purchases of premises and equipment		(96)		(1,222)
Net cash used in investing activities		(19,340)		(12,052)
FINANCING ACTIVITIES
Net increase (decrease) in deposits		3,357		(870)
Proceeds from exercise of stock options		-		21
Dividends on preferred stock		(258)		(258)
Net cash provided by (used in) financing activities		3,099		(1,107)
Decrease in cash and cash equivalents		(14,216)		(10,757)
Cash and cash equivalents, beginning of period		94,192		82,574
Cash and cash equivalents, end of period	$	79,976	$	71,817
SUPPLEMENTAL DISCLOSURES
Cash:
Interest paid	$	1,620	$	2,275
Income taxes paid		481		389
Noncash investing activities:
Transfer of loans to OREO		-		350
Purchase of leased branch locations		3,893		-
The accompanying notes to the Consolidated Financial Statements are an integral part of these statements

7

Unity Bancorp, Inc.

Notes to the Consolidated Financial Statements (Unaudited)

March 31, 2013

NOTE 1.  Significant Accounting Policies

The accompanying Consolidated Financial Statements include the accounts of Unity Bancorp, Inc. (the "Parent Company") and its wholly-owned subsidiary, Unity Bank (the "Bank" or when consolidated with the Parent Company, the "Company"), and reflect all adjustments and disclosures which are generally routine and recurring in nature, and in the opinion of management, necessary for a fair presentation of interim results.  Unity Investment Services, Inc., a wholly-owned subsidiary of the Bank, is used to hold part of the Bank’s investment portfolio.  All significant intercompany balances and transactions have been eliminated in consolidation.  Certain reclassifications have been made to prior period amounts to conform to the current year presentation, with no impact on current earnings.  The financial information has been prepared in accordance with U.S. generally accepted accounting principles and has not been audited.  In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses during the reporting periods.  Actual results could differ from those estimates.  Amounts requiring the use of significant estimates include the allowance for loan losses, valuation of deferred tax and servicing assets, the carrying value of loans held for sale and other real estate owned, the valuation of securities and the determination of other-than-temporary impairment for securities and fair value disclosures.  Management believes that the allowance for loan losses is adequate.  While management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions.  The Company has evaluated subsequent events for potential recognition and/or disclosure through the date the Consolidated Financial Statements included in this Quarterly Report on Form 10-Q were available to be issued.

The interim unaudited Consolidated Financial Statements included herein have been prepared in accordance with instructions for Form 10-Q and the rules and regulations of the Securities and Exchange Commission (“SEC”) and consist of normal recurring adjustments necessary for the fair presentation of interim results.  The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results which may be expected for the entire year.  As used in this Form 10-Q, “we” and “us” and “our” refer to Unity Bancorp, Inc., and its consolidated subsidiary, Unity Bank, depending on the context.  Certain information and financial disclosures required by generally accepted accounting principles have been condensed or omitted from interim reporting pursuant to SEC rules.  Interim financial statements should be read in conjunction with the Company’s Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

Stock Transactions

Stock Option Plans

The Company has incentive and nonqualified option plans, which allow for the grant of options to officers, employees and members of the Board of Directors.  Transactions under the Company’s stock option plans for the three months ended March 31, 2013 are summarized in the following table:

	Shares		Weighted average exercise price		Weighted average remaining contractual life (in years)		Aggregate intrinsic value
Outstanding at December 31, 2012		516,332	$	7.06		5.4	$	327,725
Options granted		25,000		6.02
Options exercised		-		-
Options forfeited		-		-
Options expired		-		-
Outstanding at March 31, 2013		541,332	$	7.01		5.4	$	391,318
Exercisable at March 31, 2013		415,837	$	7.21		4.3	$	363,559

Grants under the Company’s incentive and nonqualified option plans generally vest over 3 years and must be exercised within 10 years of the date of grant.  The exercise price of each option is the market price on the date of grant.  As of March 31, 2013, 1,720,529 shares have been reserved for issuance upon the exercise of options, 541,332 option grants are outstanding, and 1,097,521 option grants have been exercised, forfeited or expired, leaving 81,676 shares available for grant.

8

The fair values of the options granted during the three months ended March 31, 2013 and 2012 were estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	For the three months ended March 31,
	2013			2012
Number of options granted		25,000			N/A
Weighted average exercise price	$	6.02		$	N/A
Weighted average fair value of options	$	2.91		$	N/A
Expected life in years (1)		5.11			N/A
Expected volatility (2)		52.81	%		N/A	%
Risk-free interest rate (3)		0.77	%		N/A	%
Dividend yield (4)		-	%		N/A	%

(1) The expected life of the options was estimated based on historical employee behavior and represents the period of time that options granted are expected to be outstanding.

(2) The expected volatility of the Company’s stock price was based on the historical volatility over the period commensurate with the expected life of the options. 

(3) The risk-free interest rate is the U.S. Treasury rate commensurate with the expected life of the options on the date of grant.

(4) The expected dividend yield is the projected annual yield based on the grant date stock price.

Upon exercise, the Company issues shares from its authorized but unissued common stock to satisfy the options.  The following table presents information about options exercised during three months ended March 31, 2013 and 2012:

	For the three months ended March 31,
	2013		2012
Number of options exercised		N/A		3,841
Total intrinsic value of options exercised	$	N/A	$	6,055
Cash received from options exercised		N/A		21,410
Tax deduction realized from options exercised		N/A		513

The following table summarizes information about stock options outstanding and exercisable at March 31, 2013:

		Options outstanding						Options exercisable
Range of exercise prices		Options outstanding		Weighted average remaining contractual life (in years)		Weighted average exercise price		Options exercisable		Weighted average exercise price
$	0.00 - 4.00		119,750		6.1	$	3.87		119,750	$	3.87
	4.01 - 8.00		256,675		7.4		6.47		131,180		6.59
	8.01 - 12.00		120,256		1.0		9.22		120,256		9.22
	12.01 - 16.00		44,651		3.8		12.62		44,651		12.62
	Total		541,332		5.4	$	7.01		415,837	$	7.21

Financial Accounting Standards Board Accounting Standards Codification ("FASB ASC") Topic 718, “Compensation - Stock Compensation,” requires an entity to recognize the fair value of equity awards as compensation expense over the period during which an employee is required to provide service in exchange for such an award (vesting period).  Compensation expense related to stock options and the related income tax benefit for the three months ended March 31, 2013 and 2012 are detailed in the following table:

	For the three months ended March 31,
	2013		2012
Compensation expense	$	35,020	$	40,215
Income tax benefit		13,987		14,319

As of March 31, 2013, unrecognized compensation costs related to nonvested share-based compensation arrangements granted under the Company’s stock option plans totaled approximately $278 thousand.  That cost is expected to be recognized over a weighted average period of 2.0 years.

9

Restricted Stock Awards

Restricted stock is issued under the stock bonus program to reward employees and directors and to retain them by distributing stock over a period of time.  The following table summarizes nonvested restricted stock activity for the three months ended March 31, 2013:

	Shares		Average grant date fair value
Nonvested restricted stock at December 31, 2012		90,975	$	6.10
Granted		14,000		6.02
Vested		-		-
Forfeited		-		-
Nonvested restricted stock at March 31, 2013		104,975	$	6.09

Restricted stock awards granted to date vest over a period of 4 years and are recognized as compensation to the recipient over the vesting period.  The awards are recorded at fair market value at the time of grant and amortized into salary expense on a straight line basis over the vesting period.  As of March 31, 2013, 221,551 shares of restricted stock were reserved for issuance, of which 4,663 shares are available for grant.

Restricted stock awards granted during the three months ended March 31, 2013 and 2012 were as follows:

	For the three months ended March 31,
	2013		2012
Number of shares granted		14,000		N/A
Average grant date fair value	$	6.02	$	N/A

Compensation expense related to restricted stock for the three months ended March 31, 2013 and 2012 is detailed in the following table:

	For the three months ended March 31,
	2013		2012
Compensation expense	$	47,935	$	43,358

As of March 31, 2013, there was approximately $552 thousand of unrecognized compensation cost related to nonvested restricted stock awards granted under the Company’s stock incentive plans.  That cost is expected to be recognized over a weighted average period of 3.0 years.

Other-Than-Temporary Impairment

The Company has a process in place to identify debt securities that could potentially incur credit impairment that is other-than-temporary. This process involves monitoring late payments, pricing levels, downgrades by rating agencies, key financial ratios, financial statements, revenue forecasts and cash flow projections as indicators of credit issues. Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concern warrants such evaluation. This evaluation considers relevant facts and circumstances in evaluating whether a credit or interest rate-related impairment of a security is other-than-temporary. Relevant facts and circumstances considered include: (1) the extent and length of time the fair value has been below cost; (2) the reasons for the decline in value; (3) the financial position and access to capital of the issuer, including the current and future impact of any specific events and (4) for fixed maturity securities, our intent to sell a security or whether it is more likely than not we will be required to sell the security before the recovery of its amortized cost which, in some cases, may extend to maturity and for equity securities, our ability and intent to hold the security for a forecasted period of time that allows for the recovery in value.

Management assesses its intent to sell or whether it is more likely than not that it will be required to sell a security before recovery of its amortized cost basis less any current-period credit losses. For debt securities that are considered other-than-temporarily impaired with no intent to sell and no requirement to sell prior to recovery of its amortized cost basis, the amount of the impairment is separated into the amount that is credit related (credit loss component) and the amount due to all other factors. The credit loss component is recognized in earnings and is the difference between the security’s amortized cost basis and the present value of its expected future cash flows. The remaining difference between the security’s fair value and the present value of future expected cash flows is due to factors that are not credit related and is recognized in other comprehensive income. For debt securities where management has the intent to sell, the amount of the impairment is reflected in earnings as realized losses.

The present value of expected future cash flows is determined using the best estimate cash flows discounted at the effective interest rate implicit to the security at the date of purchase or the current yield to accrete an asset-backed or floating rate security. The methodology and assumptions for establishing the best estimate cash flows vary depending on the type of security. The asset-backed securities cash flow estimates are based on bond specific facts and circumstances that may include collateral characteristics, expectations of delinquency and default rates, loss severity and prepayment speeds and structural support, including subordination and guarantees. The corporate bond cash flow estimates are derived from scenario-based outcomes of expected corporate restructurings or the disposition of assets using bond specific facts and circumstances including timing, security interests and loss severity.

10

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Loans

Loans Held for Sale

Loans held for sale represent the guaranteed portion of SBA loans and are reflected at the lower of aggregate cost or market value. The Company originates loans to customers under an SBA program that historically has provided for SBA guarantees of up to 90 percent of each loan. The Company generally sells the guaranteed portion of its SBA loans to a third party and retains the servicing, holding the nonguaranteed portion in its portfolio. The net amount of loan origination fees on loans sold is included in the carrying value and in the gain or loss on the sale. When sales of SBA loans do occur, the premium received on the sale and the present value of future cash flows of the servicing assets are recognized in income. All criteria for sale accounting must be met in order for the loan sales to occur; see details under the “Transfers of Financial Assets” heading above.

Servicing assets represent the estimated fair value of retained servicing rights, net of servicing costs, at the time loans are sold. Servicing assets are amortized in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on stratifying the underlying financial assets by date of origination and term. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Any impairment, if temporary, would be reported as a valuation allowance.

Serviced loans sold to others are not included in the accompanying Consolidated Balance Sheets. Income and fees collected for loan servicing are credited to noninterest income when earned, net of amortization on the related servicing assets.

Loans Held to Maturity

Loans held to maturity are stated at the unpaid principal balance, net of unearned discounts and deferred loan origination fees and costs. In accordance with the level yield method, loan origination fees, net of direct loan origination costs, are deferred and recognized over the estimated life of the related loans as an adjustment to the loan yield. Interest is credited to operations primarily based upon the principal balance outstanding.

Loans are reported as past due when either interest or principal is unpaid in the following circumstances: fixed payment loans when the borrower is in arrears for two or more monthly payments; open end credit for two or more billing cycles; and single payment notes if interest or principal remains unpaid for 30 days or more.

Nonperforming loans consist of loans that are not accruing interest as a result of principal or interest being in default for a period of 90 days or more or when the ability to collect principal and interest according to the contractual terms is in doubt (nonaccrual loans). When a loan is classified as nonaccrual, interest accruals are discontinued and all past due interest previously recognized as income is reversed and charged against current period earnings. Generally, until the loan becomes current, any payments received from the borrower are applied to outstanding principal until such time as management determines that the financial condition of the borrower and other factors merit recognition of a portion of such payments as interest income. Loans may be returned to an accrual status when the ability to collect is reasonably assured and when the loan is brought current as to principal and interest.

Loans are charged off when collection is sufficiently questionable and when the Company can no longer justify maintaining the loan as an asset on the balance sheet. Loans qualify for charge-off when, after thorough analysis, all possible sources of repayment are insufficient. These include: 1) potential future cash flows, 2) value of collateral, and/or 3) strength of co-makers and guarantors. All unsecured loans are charged off upon the establishment of the loan’s nonaccrual status. Additionally, all loans classified as a loss or that portion of the loan classified as a loss is charged off. All loan charge-offs are approved by the Board of Directors.

Troubled debt restructurings ("TDRs") occur when a creditor, for economic or legal reasons related to a debtor’s financial condition, grants a concession to the debtor that it would not otherwise consider. These concessions typically include reductions in interest rate, extending the maturity of a loan, or a combination of both. Interest income on accruing TDRs is credited to operations primarily based upon the principal amount outstanding, as stated in the paragraphs above.

The Company evaluates its loans for impairment. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Company has defined impaired loans to be all TDRs and nonperforming loans. Impairment is evaluated in total for smaller-balance loans of a similar nature (consumer and residential mortgage loans), and on an individual basis for all other loans. Impairment of a loan is measured based on the present value of expected future cash flows, discounted at the loan's effective interest rate, or as a practical expedient, based on a loan’s observable market price or the fair value of collateral, net of estimated costs to sell, if the loan is collateral-dependent. If the value of the impaired loan is less than the recorded investment in the loan, the Company establishes a valuation allowance, or adjusts existing valuation allowances, with a corresponding charge to the provision for loan losses.

For additional information on loans, see Note 8 to the Consolidated Financial Statements and the section titled "Loan Portfolio" under Item 2.  Management's Discussion and Analysis.

11

Allowance for Loan Losses and Reserve for Unfunded Loan Commitments

The allowance for loan losses is maintained at a level management considers adequate to provide for probable loan losses as of the balance sheet date. The allowance is increased by provisions charged to expense and is reduced by net charge-offs.

The level of the allowance is based on management’s evaluation of probable losses in the loan portfolio, after consideration of prevailing economic conditions in the Company’s market area, the volume and composition of the loan portfolio, and historical loan loss experience. The allowance for loan losses consists of specific reserves for individually impaired credits and TDRs, reserves for nonimpaired loans based on historical loss factors and reserves based on general economic factors and other qualitative risk factors such as changes in delinquency trends, industry concentrations or local/national economic trends. This risk assessment process is performed at least quarterly, and, as adjustments become necessary, they are realized in the periods in which they become known.

Although management attempts to maintain the allowance at a level deemed adequate to provide for probable losses, future additions to the allowance may be necessary based upon certain factors including changes in market conditions and underlying collateral values. In addition, various regulatory agencies periodically review the adequacy of the Company’s allowance for loan losses. These agencies may require the Company to make additional provisions based on their judgments about information available to them at the time of their examination.

The Company maintains an allowance for unfunded loan commitments that is maintained at a level that management believes is adequate to absorb estimated probable losses. Adjustments to the allowance are made through other expenses and applied to the allowance which is maintained in other liabilities.

For additional information on the allowance for loan losses and unfunded loan commitments, see Note 9 to the Consolidated Financial Statements and the sections titled "Asset Quality" and "Allowance for Loan Losses and Reserve for Unfunded Loan Commitments" under Item 2.  Management's Discussion and Analysis.

Income Taxes

The Company accounts for income taxes according to the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates applicable to taxable income for the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Valuation reserves are established against certain deferred tax assets when it is more likely than not that the deferred tax assets will not be realized. Increases or decreases in the valuation reserve are charged or credited to the income tax provision.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that ultimately would be sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. The evaluation of a tax position taken is considered by itself and not offset or aggregated with other positions. Tax positions that meet the more likely than not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Interest and penalties associated with unrecognized tax benefits would be recognized in income tax expense on the income statement.

NOTE 2.  Litigation

The Company may, in the ordinary course of business, become a party to litigation involving collection matters, contract claims and other legal proceedings relating to the conduct of its business.  In the best judgment of management, based upon consultation with counsel, the consolidated financial position and results of operations of the Company will not be affected materially by the final outcome of any pending legal proceedings or other contingent liabilities and commitments.

NOTE 3.  Net Income per Share

Basic net income per common share is calculated as net income available to common shareholders divided by the weighted average common shares outstanding during the reporting period.  Net income available to common shareholders is calculated as net income less accrued dividends and discount accretion related to preferred stock. 

Diluted net income per common share is computed similarly to that of basic net income per common share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares, principally stock options and warrants, were issued during the reporting period utilizing the Treasury stock method.

12

The following is a reconciliation of the calculation of basic and diluted income per share.  

	For the three months ended March 31,
(In thousands, except per share amounts)	2013		2012
Net income	$	1,200	$	905
Less: Preferred stock dividends and discount accretion		404		396
Income available to common shareholders	$	796	$	509
Weighted average common shares outstanding - Basic		7,538		7,460
Plus: Potential dilutive common stock equivalents		307		332
Weighted average common shares outstanding - Diluted		7,845		7,792
Net income per common share - Basic	$	0.11	$	0.07
Net income per common share - Diluted		0.10		0.07
Stock options and common stock excluded from the income per share calculation as their effect would have been anti-dilutive		379		506

The "potential dilutive common stock equivalents" shown in the table above includes the impact of 764,778 common stock warrants issued to the U.S. Department of Treasury under the Capital Purchase Program in December 2008, utilizing the Treasury stock method.  These warrants were dilutive for thethree months ended March 31, 2013 and 2012.

NOTE 4.  Income Taxes

The Company follows FASB ASC Topic 740, “Income Taxes,” which prescribes a threshold for the financial statement recognition of income taxes and provides criteria for the measurement of tax positions taken or expected to be taken in a tax return.  ASC 740 also includes guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition of income taxes.  

For the quarter ended March 31, 2013, the Company reported income tax expense of $538 thousand for an effective tax rate of 31.0 percent, compared to an income tax expense of $459 thousand and effective tax rate of 33.7 percent for the prior year’s quarter.  The Company did not recognize or accrue any interest or penalties related to income taxes during the three months ended March 31, 2013 or 2012.  The Company did not have an accrual for uncertain tax positions as of March 31, 2013 or December 31, 2012, as deductions taken and benefits accrued are based on widely understood administrative practices and procedures and are based on clear and unambiguous tax law.  Tax returns for all years 2008 and thereafter are subject to future examination by tax authorities.

NOTE 5.  Other Comprehensive Income

The following table shows the changes in other comprehensive income for the three months ended March 31, 2013 and 2012:

	For the three months ended March 31,
	2013						2012
(In thousands)	Pre-tax		Tax		After-tax		Pre-tax		Tax		After-tax
Balance, beginning of period					$	1,333					$	1,121
Unrealized holding losses on securities arising during period	$	(409)	$	(179)		(230)	$	(281)	$	(127)		(154)
Less: Reclassification adjustment for gains on securities included in net income		226		76		150		224		75		149
Net unrealized losses on securities arising during the period		(635)		(255)		(380)		(505)		(202)		(303)
Balance, end of period					$	953					$	818

NOTE 6.  Fair Value

Fair Value Measurement

The Company follows FASB ASC Topic 820, “Fair Value Measurement and Disclosures,” which requires additional disclosures about the Company’s assets and liabilities that are measured at fair value.  Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  In determining fair value, the Company uses various methods including market, income and cost approaches.  Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique.  These inputs can be readily observable, market corroborated, or generally unobservable inputs.  The Company utilizes techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.  The fair value hierarchy ranks the quality and reliability of the information used to determine fair values.  Financial assets and liabilities carried at fair value will be classified and disclosed as follows:

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Level 1 Inputs

· Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

· Generally, this includes debt and equity securities and derivative contracts that are traded in an active exchange market (i.e. New York Stock Exchange), as well as certain U.S. Treasury, U.S. Government and sponsored entity agency mortgage-backed securities that are highly liquid and are actively traded in over-the-counter markets.

Level 2 Inputs

· Quoted prices for similar assets or liabilities in active markets.

· Quoted prices for identical or similar assets or liabilities in inactive markets.

· Inputs other than quoted prices that are observable, either directly or indirectly, for the term of the asset or liability (i.e., interest rates, yield curves, credit risks, prepayment speeds or volatilities) or “market corroborated inputs.”

· Generally, this includes U.S. Government and sponsored entity mortgage-backed securities, corporate debt securities and derivative contracts.

Level 3 Inputs

· Prices or valuation techniques that require inputs that are both unobservable (i.e. supported by little or no market activity) and that are significant to the fair value of the assets or liabilities.

· These assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Fair Value on a Recurring Basis

The following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis:

Securities Available for Sale

The fair value of available for sale ("AFS") securities is the market value based on quoted market prices, when available, or market prices provided by recognized broker dealers (Level 1).  If listed prices or quotes are not available, fair value is based upon quoted market prices for similar or identical assets or other observable inputs (Level 2) or externally developed models that use unobservable inputs due to limited or no market activity of the instrument (Level 3).

As of March 31, 2013, the fair value of the Company's AFS securities portfolio was $91.1 million.  Approximately 45 percent of the portfolio was made up of residential mortgage-backed securities, which had a fair value of $41.0 million at March 31, 2013.  Approximately $39.5 million of the residential mortgage-backed securities are guaranteed by the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC").  The underlying loans for these securities are residential mortgages that are geographically dispersed throughout the United States. 

All of the Company’s AFS securities, excluding commercial mortgage-backed securities, were classified as Level 2 assets at March 31, 2013.  The valuation of AFS securities using Level 2 inputs was primarily determined using the market approach, which uses quoted prices for similar assets or liabilities in active markets and all other relevant information.  It includes model pricing, defined as valuing securities based upon their relationship with other benchmark securities. 

For certain securities, the inputs used by either dealer market participants or an independent pricing service, may be derived from unobservable market information (Level 3 inputs).  In these instances, management evaluates the appropriateness and quality of the assumptions and the resulting prices.  In addition, management reviews the volume and level of activity for all AFS securities and attempts to identify transactions which may not be orderly or reflective of a significant level of activity and volume.  For securities meeting these criteria, the quoted prices received from either market participants or an independent pricing service may be adjusted, as necessary, to estimate fair value and this results in fair values based on Level 3 inputs.  In determining fair value, the Company utilizes unobservable inputs which reflect its own assumptions about the inputs that market participants would use in pricing each security.  In developing its assertion of market participant assumptions, the Company utilizes the best information that is both reasonable and available without undue cost and effort.

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In calculating the fair value for AFS securities under Level 3, management prepared present value cash flow models for certain private label commercial mortgage-backed securities. The cash flows for the commercial mortgage-backed securities incorporated the expected cash flow of each security adjusted for default rates, loss severities and prepayments of the individual loans collateralizing the security.  The following table presents quantitative information about Level 3 inputs used to measure the fair value of commercial mortgage-backed securities at March 31, 2013:

March 31, 2013
Valuation Technique	Unobservable Input	Range		Weighted Average
Discounted Cash Flow	Prepayment rate	8 through 15	%	10.0	%
	Default rate	10 through 15	%	12.5	%
	Loss severity	10 through 25	%	18.0	%

Significant increases or decreases in any of the unobservable inputs in the table above in isolation would result in a significantly lower or higher fair value measurement of the securities.  Generally, a change in the assumption used for the default rate is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates.

For the Level 3 available for sale private label commercial mortgage-backed securities, cash flow assumptions incorporate independent third party market participant data based on vintage year for each security.  The discount rate utilized in determining the present value of cash flows for the commercial mortgage-backed securities was arrived at by combining the yield on orderly transactions for similar maturity government sponsored mortgage-backed securities with (i) the historical average risk premium of similar structured private label securities, (ii) a risk premium reflecting current market conditions, including liquidity risk and (iii) if applicable, a forecasted loss premium derived from the expected cash flows of each security.  The estimated cash flows for each private label commercial mortgage-backed security are then discounted at the aforementioned effective rate to determine the fair value.  The quoted prices received from either market participants or independent pricing services are weighted with the internal price estimate to determine the fair value of each instrument.

There were no changes in the inputs or methodologies used to determine fair value during the period ended March 31, 2013, as compared to the periods ended December 31, 2012 and March 31, 2012.  

The tables below present the balances of assets and liabilities measured at fair value on a recurring basis as of March 31, 2013 and December 31, 2012:

	March 31, 2013
(In thousands)	Level 1		Level 2		Level 3		Total
Securities available for sale:
U.S. Government sponsored entities	$	-	$	6,995	$	-	$	6,995
State and political subdivisions		-		20,906		-		20,906
Residential mortgage-backed securities		-		40,998		-		40,998
Commercial mortgage-backed securities		-		-		3,681		3,681
Corporate and other securities		-		18,487		-		18,487
Total securities available for sale	$	-	$	87,386	$	3,681	$	91,067
	December 31, 2012
(In thousands)	Level 1		Level 2		Level 3		Total
Securities available for sale:
U.S. Government sponsored entities	$	-	$	2,568	$	-	$	2,568
State and political subdivisions		-		15,303		-		15,303
Residential mortgage-backed securities		-		45,545		-		45,545
Commercial mortgage-backed securities		-		-		4,463		4,463
Corporate and other securities		-		21,659		-		21,659
Total securities available for sale	$	-	$	85,075	$	4,463	$	89,538

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The following table summarizes changes in Level 3 assets during the three months ended March 31, 2013 and 2012, consisting of commercial mortgage-backed available for sale securities, measured at fair value on a recurring basis:

	For the three months ended March 31,
(In thousands)	2013		2012
Commercial mortgage-backed securities:
Balance, beginning of period	$	4,463	$	-
Payoffs		(505)		-
Principal paydowns		(244)		-
Total net losses included in:
Other comprehensive income		(33)		-
Balance, end of period	$	3,681	$	-

There were no gains or losses (realized or unrealized) including in earnings for assets and liabilities held at March 31, 2013 or 2012.

Fair Value on a Nonrecurring Basis

Certain assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).  The following is a description of the valuation methodologies used for instruments measured at fair value on a nonrecurring basis:

Appraisal Policy

All appraisals must be performed in accordance with the Uniform Standards of Professional Appraisal Practice ("USPAP").  Appraisals are certified to the Company and performed by appraisers on the Company’s approved list of appraisers.  Evaluations are completed by a person independent of Company management.  The content of the appraisal depends on the complexity of the property.  Appraisals are completed on a “retail value” and an “as is value”.

The Company requires current real estate appraisals on all loans that become OREO or in-substance foreclosure, loans that are classified substandard, doubtful or loss, or loans that are over $100,000 and nonperforming.  Prior to each balance sheet date, the Company values impaired collateral-dependent loans and OREO based upon a third party appraisal, broker's price opinion, drive by appraisal, automated valuation model, updated market evaluation, or a combination of these methods.  The amount is discounted for the decline in market real estate values (for original appraisals), for any known damage or repair costs, and for selling and closing costs.  The amount of the discount ranges from 10 to 25 percent and is dependent upon the method used to determine the original value.  The original appraisal is generally used when a loan is first determined to be impaired.  When applying the discount, the Company takes into consideration when the appraisal was performed, the collateral’s location, the type of collateral, any known damage to the property and the type of business. Subsequent to entering impaired status and the Company determining that there is a collateral shortfall, the Company will generally, depending on the type of collateral, order a third party appraisal, broker's price opinion, automated valuation model or updated market evaluation.  Subsequent to receiving the third party results, the Company will discount the value 8 to 10 percent for selling and closing costs.

Other Real Estate Owned ("OREO")

The fair value of OREO is determined using appraisals, which may be discounted based on management’s review and changes in market conditions (Level 3 Inputs).  

Impaired Collateral-Dependent Loans

The fair value of impaired collateral-dependent loans is derived in accordance with FASB ASC Topic 310, “Receivables.”  Fair value is determined based on the loan’s observable market price or the fair value of the collateral.  Partially charged-off loans are measured for impairment based upon an appraisal for collateral-dependant loans.  When an updated appraisal is received for a nonperforming loan, the value on the appraisal is discounted in the manner discussed above. If there is a deficiency in the value after the Company applies these discounts, management applies a specific reserve and the loan remains in nonaccrual status.  The receipt of an updated appraisal would not qualify as a reason to put a loan back into accruing status. The Company removes loans from nonaccrual status when the borrower makes six months of contractual payments and demonstrates the ability to service the debt going forward.  Charge-offs are determined based upon the loss that management believes the Company will incur after evaluating collateral for impairment based upon the valuation methods described above and the ability of the borrower to pay any deficiency.

The valuation allowance for impaired loans is included in the allowance for loan losses in the consolidated balance sheets.  At March 31, 2013, the valuation allowance for impaired loans was $1.7 million, a decrease of $322 thousand from $2.0 million at December 31, 2012.

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The following tables present the assets and liabilities carried on the balance sheet by caption and by level within the hierarchy (as described above) as of March 31, 2013 and March 31, 2012 and the fair value gains (losses) recognized during the three months ended March 31, 2013 and 2012:

	Fair value at March 31, 2013								Gains (losses) from fair value changes for the
(In thousands)	Level 1		Level 2		Level 3		Total		three months ended March 31, 2013
Financial assets:
OREO	$	-	$	-	$	300	$	300	$	(70)
Impaired collateral-dependent loans		-		-		9,290		9,290		322
	Fair value at March 31, 2012								Gains (losses) from fair value changes for the
(In thousands)	Level 1		Level 2		Level 3		Total		three months ended March 31, 2012
Financial assets:
OREO	$	-	$	-	$	256	$	256	$	(116)
Impaired collateral-dependent loans		-		-		11,851		11,851		568

Fair Value of Financial Instruments

FASB ASC Topic 825, “Financial Instruments,” requires the disclosure of the estimated fair value of certain financial instruments, including those financial instruments for which the Company did not elect the fair value option. These estimated fair values as of March 31, 2013 and December 31, 2012 have been determined using available market information and appropriate valuation methodologies.  Considerable judgment is required to interpret market data to develop estimates of fair value.  The estimates presented are not necessarily indicative of amounts the Company could realize in a current market exchange.  The use of alternative market assumptions and estimation methodologies could have had a material effect on these estimates of fair value.  The methodology for estimating the fair value of financial assets and liabilities that are measured on a recurring or nonrecurring basis are discussed above.  The following methods and assumptions were used to estimate the fair value of other financial instruments for which it is practicable to estimate that value:

Cash and Cash Equivalents

For these short-term instruments, the carrying value is a reasonable estimate of fair value.

Securities Held to Maturity

The fair value of held to maturity ("HTM") securities is based upon quoted market prices for similar or identical assets or other observable inputs (Level 2) or externally developed models that use unobservable inputs due to limited or no market activity of the instrument (Level 3).

SBA Loans Held for Sale

The fair value of SBA loans held for sale is estimated by using a market approach that includes significant other observable inputs.

Loans

The fair value of loans is estimated by discounting the future cash flows using current market rates that reflect the interest rate risk inherent in the loan, except for previously discussed impaired loans.

Federal Home Loan Bank Stock

Federal Home Loan Bank stock is carried at cost.  Carrying value approximates fair value based on the redemption provisions of the issues.

SBA Servicing Assets

SBA servicing assets do not trade in an active, open market with readily observable prices.  The Company estimates the fair value of SBA servicing assets using discounted cash flow models incorporating numerous assumptions from the perspective of a market participant including market discount rates and prepayment speeds.

Accrued Interest

The carrying amounts of accrued interest approximate fair value.

Deposit Liabilities

The fair value of demand deposits and savings accounts is the amount payable on demand at the reporting date (i.e. carrying value).  The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using current market rates.

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Borrowed Funds and Subordinated Debentures

The fair value of borrowings is estimated by discounting the projected future cash flows using current market rates.

Standby Letters of Credit

At March 31, 2013, the Bank had standby letters of credit outstanding of $1.6 million, consistent with December 31, 2012.  The fair value of these commitments is nominal.

The table below presents the carrying amount and estimated fair values of the Company’s financial instruments not previously presented as of March 31, 2013 and December 31, 2012:

			March 31, 2013				December 31, 2012
(In thousands)	Fair value level		Carrying amount		Estimated fair value		Carrying amount		Estimated fair value
Financial assets:
Cash and cash equivalents		Level 1	$	79,976	$	79,976	$	94,192	$	94,192
Securities held to maturity (1)		Level 2		28,267		28,859		21,515		22,741
SBA loans held for sale		Level 2		6,556		7,293		6,937		7,582
Loans, net of allowance for loan losses (2)		Level 2		575,670		574,118		565,341		564,528
Federal Home Loan Bank stock		Level 2		3,989		3,989		3,989		3,989
SBA servicing assets		Level 3		388		388		396		396
Accrued interest receivable		Level 2		3,362		3,362		3,298		3,298
Financial liabilities:
Deposits		Level 2		652,117		653,668		648,760		650,668
Borrowed funds and subordinated debentures		Level 2		90,465		99,571		90,465		100,257
Accrued interest payable		Level 2		438		438		434		434

(1)	Includes held to maturity commercial mortgage-backed securities that are considered Level 3. These securities had book values of $6.8 million and $2.7 million at March 31, 2013 and December 31, 2012, respectively, and market values of $6.8 million and $3.2 million at March 31, 2013 and December 31, 2012, respectively.
(2)	Includes impaired loans that are considered Level 3 and reported separately in the tables under the “Fair Value on a Nonrecurring Basis” heading. Impaired loans, net of specific reserves totaled $9.3 million and $8.2 million at March 31, 2013 and December 31, 2012, respectively.

Note 7. Securities

This table provides the major components of securities available for sale (“AFS”) and held to maturity (“HTM”) at amortized cost and estimated fair value at March 31, 2013 and December 31, 2012:

	March 31, 2013								December 31, 2012
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value		Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Available for sale:
U.S. Government sponsored entities	$	6,927	$	72	$	(4)	$	6,995	$	2,482	$	86	$	-	$	2,568
State and political subdivisions		20,557		499		(150)		20,906		14,690		613		-		15,303
Residential mortgage-backed securities		39,669		1,417		(88)		40,998		43,984		1,684		(123)		45,545
Commercial mortgage-backed securities		3,674		10		(3)		3,681		4,423		42		(2)		4,463
Corporate and other securities		18,658		247		(418)		18,487		21,741		490		(572)		21,659
Total securities available for sale	$	89,485	$	2,245	$	(663)	$	91,067	$	87,320	$	2,915	$	(697)	$	89,538
Held to maturity:
U.S. Government sponsored entities	$	6,049	$	1	$	(31)	$	6,019	$	5,050	$	38	$	-	$	5,088
State and political subdivisions		2,744		291		-		3,035		2,746		288		-		3,034
Residential mortgage-backed securities		11,653		345		(11)		11,987		11,048		374		(13)		11,409
Commercial mortgage-backed securities		6,842		107		(106)		6,843		2,671		539		-		3,210
Corporate and other securities		979		-		(4)		975		-		-		-		-
Total securities held to maturity	$	28,267	$	744	$	(152)	$	28,859	$	21,515	$	1,239	$	(13)	$	22,741

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This table provides the remaining contractual maturities and yields of securities within the investment portfolios.  The carrying value of securities at March 31, 2013 is distributed by contractual maturity.  Mortgage-backed securities and other securities, which may have principal prepayment provisions, are distributed based on contractual maturity.  Expected maturities will differ materially from contractual maturities as a result of early prepayments and calls.

	Within one year				After one through five years				After five through ten years				After ten years				Total carrying value
(In thousands, except percentages)	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
Available for sale at fair value:
U.S. Government sponsored entities	$	-	-	%	$	1,108	1.17	%	$	1,017	2.13	%	$	4,870	2.09	%	$	6,995	1.95	%
State and political subdivisions		1,504	0.70			841	2.55			13,151	2.92			5,410	2.83			20,906	2.72
Residential mortgage-backed securities		46	3.11			208	4.41			680	4.44			40,064	2.72			40,998	2.76
Commercial mortgage-backed securities		-	-			-	-			-	-			3,681	3.11			3,681	3.11
Corporate and other securities		-	-			1,401	1.80			6,907	3.14			10,179	2.33			18,487	2.59
Total securities available for sale	$	1,550	0.77	%	$	3,558	1.93	%	$	21,755	3.00	%	$	64,204	2.64	%	$	91,067	2.67	%
Held to maturity at cost:
U.S. Government sponsored entities	$	-	-	%	$	-	-	%	$	-	-	%	$	6,049	1.80	%	$	6,049	1.80	%
State and political subdivisions		624	0.75			-	-			-	-			2,120	4.70			2,744	3.80
Residential mortgage-backed securities		48	3.67			871	4.75			610	5.00			10,124	2.05			11,653	2.42
Commercial mortgage-backed securities		-	-			-	-			-	-			6,842	3.80			6,842	3.80
Corporate and other securities		-	-			-	-			979	2.95			-	-			979	2.95
Total securities held to maturity	$	672	0.96	%	$	871	4.75	%	$	1,589	3.74	%	$	25,135	2.69	%	$	28,267	2.77	%

The fair value of securities with unrealized losses by length of time that the individual securities have been in a continuous unrealized loss position at March 31, 2013 and December 31, 2012 are as follows:

	March 31, 2013
			Less than 12 months				12 months and greater				Total
(In thousands, except number in a loss position)	Total number in a loss position		Estimated fair value		Unrealized loss		Estimated fair value		Unrealized loss		Estimated fair value		Unrealized loss
Available for sale:
U.S. Government sponsored entities		2	$	2,005	$	(4)	$	-	$	-	$	2,005	$	(4)
State and political subdivisions		10		6,196		(150)		-		-		6,196		(150)
Residential mortgage-backed securities		3		1,945		(25)		1,773		(63)		3,718		(88)
Commercial mortgage-backed securities		4		684		(3)		158		-		842		(3)
Corporate and other securities		7		3,455		(38)		3,144		(380)		6,599		(418)
Total temporarily impaired securities		26	$	14,285	$	(220)	$	5,075	$	(443)	$	19,360	$	(663)
Held to maturity:
U.S. Government sponsored entities		2	$	4,019	$	(31)	$	-	$	-	$	4,019	$	(31)
Residential mortgage-backed securities		3		2,246		(8)	$	214		(3)	$	2,460		(11)
Commercial mortgage-backed securities		2		4,070		(106)		-		-		4,070		(106)
Corporate and other securities		1		974		(4)		-		-		974		(4)
Total temporarily impaired securities		8	$	11,309	$	(149)	$	214	$	(3)	$	11,523	$	(152)
	December 31, 2012
			Less than 12 months				12 months and greater				Total
(In thousands, except number in a loss position)	Total number in a loss position		Estimated fair value		Unrealized loss		Estimated fair value		Unrealized loss		Estimated fair value		Unrealized loss
Available for sale:
Residential mortgage-backed securities		5	$	3,272	$	(43)	$	1,951	$	(80)	$	5,223	$	(123)
Commercial mortgage-backed securities		4		2,351		(2)		-		-		2,351		(2)
Corporate and other securities		6		2,486		(26)		2,994		(546)		5,480		(572)
Total temporarily impaired securities		15	$	8,109	$	(71)	$	4,945	$	(626)	$	13,054	$	(697)
Held to maturity:
Residential mortgage-backed securities		3	$	838	$	(2)	$	279	$	(11)	$	1,117	$	(13)
Total temporarily impaired securities		3	$	838	$	(2)	$	279	$	(11)	$	1,117	$	(13)

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Unrealized Losses

The unrealized losses in each of the categories presented in the tables above are discussed in the paragraphs that follow:

U.S. government sponsored entities and state and political subdivision securities: The unrealized losses on investments in these types of securities were caused by the increase in interest rate spreads.  The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investments.  Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity, the Company did not consider these investments to be other-than temporarily impaired as of March 31, 2013.  There was no impairment on these securities at December 31, 2012.

Residential and commercial mortgage-backed securities:  The unrealized losses on investments in mortgage-backed securities were caused by increases in interest rate spreads or faster prepayment speeds.  The majority of contractual cash flows of these securities are guaranteed by Fannie Mae, Ginnie Mae and the Federal Home Loan Mortgage Corporation.  It is expected that the securities would not be settled at a price significantly less than the par value of the investment.  Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity, the Company did not consider these investments to be other-than-temporarily impaired as of March 31, 2013 or December 31, 2012.

Corporate and other securities: Included in this category are corporate debt securities, Community Reinvestment Act (“CRA”) investments, asset-backed securities, and trust preferred securities.  The unrealized losses on corporate debt securities were due to widening credit spreads and the unrealized losses on CRA investments were caused by decreases in the market prices of the shares.  The Company evaluated the prospects of the issuers and forecasted a recovery period; and as a result determined it did not consider these investments to be other-than-temporarily impaired as of March 31, 2013 or December 31, 2012.  The unrealized losses on asset-backed securities were caused by increases in interest rate spreads.  The majority of contractual cash flows of these securities are guaranteed by Sallie Mae as part of the Federal Family Education Loan ("FFEL") Program.It is expected that the securities would not be settled at a price significantly less than the par value of the investment.  Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity, the Company did not consider these investments to be other-than-temporarily impaired as of March 31, 2013 or December 31, 2012.  The unrealized losses on trust preferred securities were caused by an inactive trading market and changes in market credit spreads.  At March 31, 2013 and December 31, 2012, this category consisted of one single-issuer trust preferred security. The contractual terms do not allow the security to be settled at a price less than the par value.  Because the Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, which may be at maturity, the Company did not consider this security to be other-than-temporarily impaired as of March 31, 2013 or December 31, 2012.

Realized Gains and Losses

Gross realized gains (losses) on securities for thethree months ended March 31, 2013 and 2012 are detailed in the table below:

	For the three months ended March 31,
(In thousands)	2013		2012
Available for sale:
Realized gains	$	230	$	228
Realized losses		(4)		(4)
Total securities available for sale		226		224
Held to maturity:
Realized gains		-		-
Realized losses		-		-
Total securities held to maturity		-		-
Net gains on sales of securities	$	226	$	224

The net realized gains are included in noninterest income in the Consolidated Statements of Income as net security gains.  For the three months ended March 31, 2013, there were gross realized gains of $230 thousand and gross realized losses of $4 thousand. The net realized gains during 2013 were a result of the following:

· The Company sold approximately $5.4 million in book value of available for sale asset-backedsecurities and corporate bonds, resulting in pre-tax gains of approximately $227 thousand, and $60 thousand in equity securities resulting in pre-tax gains on $3 thousand.

· Losses of $4 thousand on the partial call of $60 thousand in book value of one available for sale municipal security.

20

For the three months ended March 31, 2012, there were gross realized gains of $228 thousand and gross realized losses of $4 thousand.  The net realized gains during the three months ended March 31, 2012 were primarily attributed to:

· The Company sold approximately $2.6 million in book value of available for sale mortgage-backed and municipal securities, resulting in pre-tax gains of approximately $228 thousand, partially offset by

· Losses of $4 thousand on the partial call of approximately $60 thousand in book value of one available for sale municipal security.

Pledged Securities

Securities with a carrying value of $79.2 million and $78.4 million at March 31, 2013 and December 31, 2012, respectively, were pledged to secure Government deposits, secure other borrowings and for other purposes required or permitted by law.  Included in these figures was $26.8 million and $25.1 million pledged against Government deposits at March 31, 2013 and December 31, 2012, respectively.

Note 8.  Loans

The following table sets forth the classification of loans by class, including unearned fees, deferred costs and excluding the allowance for loan losses as of March 31, 2013 and December 31, 2012:

(In thousands)	March 31, 2013		December 31, 2012
SBA loans held to maturity	$	56,868	$	58,593
SBA 504 loans		39,784		41,438
Commercial loans
Commercial other		27,787		24,043
Commercial real estate		270,097		264,439
Commercial real estate construction		12,765		13,082
Residential mortgage loans
Residential mortgages		129,570		125,232
Purchased residential mortgages		6,775		6,862
Consumer loans
Home equity		44,064		45,152
Consumer other		2,305		1,258
Total loans held for investment	$	590,015	$	580,099
SBA loans held for sale		6,556		6,937
Total loans	$	596,571	$	587,036

Loans are made to individuals as well as commercial entities. Specific loan terms vary as to interest rate, repayment, and collateral requirements based on the type of loan requested and the credit worthiness of the prospective borrower. Credit risk, excluding SBA loans, tends to be geographically concentrated in that a majority of the loan customers are located in the markets serviced by the Bank. As a preferred SBA lender, a portion of the SBA portfolio is to borrowers outside the Company’s lending area. However, during late 2008, the Company withdrew from SBA lending outside of its primary trade area, but continues to offer SBA loan products as an additional credit product within its primary trade area. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market such as geographic location and/or property type. A description of the Company's different loan segments follows:

SBA Loans: SBA 7(a) loans, on which the SBA has historically provided guarantees of up to 90 percent of the principal balance, are considered a higher risk loan product for the Company than its other loan products. The guaranteed portion of the Company’s SBA loans is generally sold in the secondary market with the nonguaranteed portion held in the portfolio as a loan held for investment. SBA loans are for the purpose of providing working capital, financing the purchase of equipment, inventory or commercial real estate and for other business purposes. Loans are guaranteed by the businesses' major owners. SBA loans are made based primarily on the historical and projected cash flow of the business and secondarily on the underlying collateral provided.

SBA 504 Loans: The SBA 504 program consists of real estate backed commercial mortgages where the Company has the first mortgage and the SBA has the second mortgage on the property. SBA 504 loans are made based primarily on the historical and projected cash flow of the business and secondarily on the underlying collateral provided. Generally, the Company has a 50 percent loan to value ratio on SBA 504 program loans at origination.

Commercial Loans: Commercial credit is extended primarily to middle market and small business customers. Commercial loans are generally made in the Company’s market place for the purpose of providing working capital, financing the purchase of equipment, inventory or commercial real estate and for other business purposes. Loans will generally be guaranteed in full or for a meaningful amount by the businesses' major owners. Commercial loans are made based primarily on the historical and projected cash flow of the business and secondarily on the underlying collateral provided.

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ResidentialMortgage and Consumer Loans: The Company originates mortgage and consumer loans including principally residential real estate and home equity lines and loans. Each loan type is evaluated on debt to income, type of collateral and loan to collateral value, credit history and Company relationship with the borrower.

Inherent in the lending function is credit risk, which is the possibility a borrower may not perform in accordance with the contractual terms of their loan. A borrower’s inability to pay their obligations according to the contractual terms can create the risk of past due loans and, ultimately, credit losses, especially on collateral deficient loans. The Company minimizes its credit risk by loan diversification and adhering to credit administration policies and procedures. Due diligence on loans begins when we initiate contact regarding a loan with a borrower. Documentation, including a borrower’s credit history, materials establishing the value and liquidity of potential collateral, the purpose of the loan, the source of funds for repayment of the loan, and other factors, are analyzed before a loan is submitted for approval. The loan portfolio is then subject to on-going internal reviews for credit quality, as well as independent credit reviews by an outside firm.

The Company's extension of credit is governed by the Credit Risk Policy which was established to control the quality of the Company's loans. These policies and procedures are reviewed and approved by the Board of Directors on a regular basis.

Credit Ratings

For SBA 7(a), SBA 504 and commercial loans, management uses internally assigned risk ratings as the best indicator of credit quality. A loan’s internal risk rating is updated at least annually and more frequently if circumstances warrant a change in risk rating. The Company uses a 1 through 10 loan grading system that follows regulatory accepted definitions.

Pass: Risk ratings of 1 through 6 are used for loans that are performing, as they meet, and are expected to continue to meet, all of the terms and conditions set forth in the original loan documentation, and are generally current on principal and interest payments. These performing loans are termed “Pass”.

Special Mention: Criticized loans are assigned a risk rating of 7 and termed “Special Mention”, as the borrowers exhibit potential credit weaknesses or downward trends deserving management’s close attention. If not checked or corrected, these trends will weaken the Bank’s collateral and position. While potentially weak, these borrowers are currently marginally acceptable and no loss of interest or principal is anticipated. As a result, special mention assets do not expose an institution to sufficient risk to warrant adverse classification. Included in “Special Mention” could be turnaround situations, such as borrowers with deteriorating trends beyond one year, borrowers in startup or deteriorating industries, or borrowers with a poor market share in an average industry. "Special Mention" loans may include an element of asset quality, financial flexibility, or below average management. Management and ownership may have limited depth or experience. Regulatory agencies have agreed on a consistent definition of “Special Mention” as an asset with potential weaknesses which, if left uncorrected, may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. This definition is intended to ensure that the “Special Mention” category is not used to identify assets that have as their sole weakness credit data exceptions or collateral documentation exceptions that are not material to the repayment of the asset.

Substandard: Classified loans are assigned a risk rating of an 8 or 9, depending upon the prospect for collection, and deemed “Substandard”. A risk rating of 8 is used for borrowers with well-defined weaknesses that jeopardize the orderly liquidation of debt. The loan is inadequately protected by the current paying capacity of the obligor or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy, although no loss of principal is envisioned. There is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified “Substandard”.

A risk rating of 9 is used for borrowers that have all the weaknesses inherent in a loan with a risk rating of 8, with the added characteristic that the weaknesses make collection of debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Serious problems exist to the point where partial loss of principal is likely. The possibility of loss is extremely high, but because of certain important, reasonably specific pending factors that may work to strengthen the assets, the loans’ classification as estimated losses is deferred until a more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures; capital injection; perfecting liens on additional collateral; and refinancing plans. Partial charge-offs are likely.

Loss: Once a borrower is deemed incapable of repayment of unsecured debt, the risk rating becomes a 10, the loan is termed a “Loss”, and charged-off immediately. Loans to such borrowers are considered uncollectible and of such little value that continuance as active assets of the Bank is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off these basically worthless assets even though partial recovery may be affected in the future.

For residential mortgage and consumer loans, management uses performing versus nonperforming as the best indicator of credit quality. Nonperforming loans consist of loans that are not accruing interest (nonaccrual loans) as a result of principal or interest being in default for a period of 90 days or more or when the ability to collect principal and interest according to the contractual terms is in doubt. These credit quality indicators are updated on an ongoing basis, as a loan is placed on nonaccrual status as soon as management believes there is sufficient doubt as to the ultimate ability to collect interest on a loan.

22

The tables below detail the Company’s loan portfolio by class according to their credit quality indicators discussed in the paragraphs above as of March 31, 2013:

	March 31, 2013
	SBA, SBA 504 & Commercial loans - Internal risk ratings
(In thousands)	Pass		Special mention		Substandard		Total
SBA loans held to maturity	$	45,017	$	3,833	$	8,018	$	56,868
SBA 504 loans		28,401		4,028		7,355		39,784
Commercial loans
Commercial other		23,923		1,713		2,151		27,787
Commercial real estate		237,280		28,487		4,330		270,097
Commercial real estate construction		12,563		-		202		12,765
Total commercial loans		273,766		30,200		6,683		310,649
Total SBA, SBA 504 and commercial loans	$	347,184	$	38,061	$	22,056	$	407,301
	Residential mortgage & Consumer loans - Performing/Nonperforming
(In thousands)			Performing		Nonperforming		Total
Residential mortgage loans
Residential mortgages			$	126,745	$	2,825	$	129,570
Purchased residential mortgages				5,046		1,729		6,775
Total residential mortgage loans				131,791		4,554		136,345
Consumer loans
Home equity				43,762		302		44,064
Consumer other				2,305		-		2,305
Total consumer loans				46,067		302		46,369
Total residential mortgage and consumer loans			$	177,858	$	4,856	$	182,714

The tables below detail the Company’s loan portfolio by class according to their credit quality indicators discussed in the paragraphs above as of December 31, 2012: 

	December 31, 2012
	SBA, SBA 504 & Commercial loans - Internal risk ratings
(In thousands)	Pass		Special mention		Substandard		Total
SBA loans held to maturity	$	45,680	$	4,376	$	8,537	$	58,593
SBA 504 loans		28,726		5,860		6,852		41,438
Commercial loans
Commercial other		20,187		1,669		2,187		24,043
Commercial real estate		229,516		30,733		4,190		264,439
Commercial real estate construction		12,880		202		-		13,082
Total commercial loans		262,583		32,604		6,377		301,564
Total SBA, SBA 504 and commercial loans	$	336,989	$	42,840	$	21,766	$	401,595
	Residential mortgage & Consumer loans - Performing/Nonperforming
(In thousands)			Performing		Nonperforming		Total
Residential mortgage loans
Residential mortgages			$	122,711	$	2,521	$	125,232
Purchased residential mortgages				3,872		2,990		6,862
Total residential mortgage loans				126,583		5,511		132,094
Consumer loans
Home equity				44,844		308		45,152
Consumer other				1,249		9		1,258
Total consumer loans				46,093		317		46,410
Total residential mortgage and consumer loans			$	172,676	$	5,828	$	178,504

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Nonperforming and Past Due Loans

Nonperforming loans consist of loans that are not accruing interest (nonaccrual loans) as a result of principal or interest being in default for a period of 90 days or more or when the ability to collect principal and interest according to the contractual terms is in doubt. Loans past due 90 days or more and still accruing interest are not included in nonperforming loans and generally represent loans that are well collateralized and in a continuing process expected to result in repayment or restoration to current status. The risk of loss is difficult to quantify and is subject to fluctuations in collateral values, general economic conditions and other factors. The current state of the economy and the downturn in the real estate market has resulted in increased loan delinquencies and defaults. In some cases, these factors have also resulted in significant impairment to the value of loan collateral. The Company values its collateral through the use of appraisals, broker price opinions, and knowledge of its local market. In response to the credit risk in its portfolio, the Company has increased staffing in its credit monitoring department and increased efforts in the collection and analysis of borrowers’ financial statements and tax returns.

The following tables set forth an aging analysis of past due and nonaccrual loans as of March 31, 2013 and December 31, 2012:

	March 31, 2013
(In thousands)	30-59 days past due		60-89 days past due		90+ days and still accruing		Nonaccrual (1)		Total past due		Current		Total loans
SBA loans held to maturity	$	388	$	-	$	212	$	4,441	$	5,041	$	51,827	$	56,868
SBA 504 loans		4,511		-		415		1,235		6,161		33,623		39,784
Commercial loans
Commercial other		20		-		-		1,091		1,111		26,676		27,787
Commercial real estate		651		52		-		3,079		3,782		266,315		270,097
Commercial real estate construction		-		-		-		202		202		12,563		12,765
Residential mortgage loans
Residential mortgages		2,132		-		-		2,825		4,957		124,613		129,570
Purchased residential mortgages		71		17		4		1,729		1,821		4,954		6,775
Consumer loans
Home equity		318		725		-		302		1,345		42,719		44,064
Consumer other		1		-		1		-		2		2,303		2,305
Total loans held for investment	$	8,092	$	794	$	632	$	14,904	$	24,422	$	565,593	$	590,015
SBA loans held for sale		-		-		-		-		-		6,556		6,556
Total loans	$	8,092	$	794	$	632	$	14,904	$	24,422	$	572,149	$	596,571

(1) At March 31, 2013, nonaccrual loans included $1.1 million of troubled debt restructurings ("TDRs") and $1.9million of loans guaranteed by the SBA.  The remaining $15.1 million of TDRs are in accrual status because they are performing in accordance with their restructured terms.

	December 31, 2012
(In thousands)	30-59 days past due		60-89 days past due		90+ days and still accruing		Nonaccrual (1)		Total past due		Current		Total loans
SBA loans held to maturity	$	1,912	$	296	$	-	$	4,633	$	6,841	$	51,752	$	58,593
SBA 504 loans		5,037		-		-		2,562		7,599		33,839		41,438
Commercial loans
Commercial other		-		-		109		1,122		1,231		22,812		24,043
Commercial real estate		3,763		-		-		3,323		7,086		257,353		264,439
Commercial real estate construction		-		202		-		-		202		12,880		13,082
Residential mortgage loans
Residential mortgages		2,651		1,878		-		2,521		7,050		118,182		125,232
Purchased residential mortgages		134		78		-		2,990		3,202		3,660		6,862
Consumer loans
Home equity		833		-		-		308		1,141		44,011		45,152
Consumer other		-		-		-		9		9		1,249		1,258
Total loans held for investment	$	14,330	$	2,454	$	109	$	17,468	$	34,361	$	545,738	$	580,099
SBA loans held for sale		-		-		-		-		-		6,937		6,937
Total loans	$	14,330	$	2,454	$	109	$	17,468	$	34,361	$	552,675	$	587,036

(1) At December 31, 2012, nonaccrual loans included $1.1 million of TDRs and $1.8million of loans guaranteed by the SBA.  The remaining $13.6 million of TDRs are in accrual status because they are performing in accordance with their restructured terms.

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Impaired Loans

The Company has defined impaired loans to be all nonperforming loans and troubled debt restructurings.  Management considers a loan impaired when, based on current information and events, it is determined that the Company will not be able to collect all amounts due according to the loan contract.

The following table provides detail on the Company’s impaired loans with the associated allowance amount, if applicable, as of March 31, 2013:

	March 31, 2013
(In thousands)	Unpaid principal balance		Recorded investment		Specific reserves
With no related allowance:
SBA loans held to maturity (1)	$	1,009	$	709	$	-
SBA 504 loans		4,654		4,404		-
Commercial loans
Commercial other		2,026		2,027		-
Commercial real estate		5,317		5,142		-
Total commercial loans		7,343		7,169		-
Total impaired loans with no related allowance		13,006		12,282		-
With an allowance:
SBA loans held to maturity (1)		3,635		2,789		1,050
SBA 504 loans		1,297		1,097		206
Commercial loans
Commercial other		26		13		13
Commercial real estate		6,952		6,868		328
Commercial real estate construction		202		202		82
Total commercial loans		7,180		7,083		423
Total impaired loans with a related allowance		12,112		10,969		1,679
Total individually evaluated impaired loans:
SBA loans held to maturity (1)		4,644		3,498		1,050
SBA 504 loans		5,951		5,501		206
Commercial loans
Commercial other		2,052		2,040		13
Commercial real estate		12,269		12,010		328
Commercial real estate construction		202		202		82
Total commercial loans		14,523		14,252		423
Total individually evaluated impaired loans	$	25,118	$	23,251	$	1,679

(1) Balances are reduced by amount guaranteed by the SBA of $1.9million at March 31, 2013.

25

The following table provides detail on the Company’s impaired loans with the associated allowance amount, if applicable, as of December 31, 2012:

	December 31, 2012
(In thousands)	Unpaid principal balance		Recorded investment		Specific reserves
With no related allowance:
SBA loans held to maturity (1)	$	1,352	$	866	$	-
SBA 504 loans		5,812		5,555		-
Commercial loans
Commercial other		2,032		2,033		-
Commercial real estate		5,220		4,752		-
Total commercial loans		7,252		6,785		-
Total impaired loans with no related allowance		14,416		13,206		-
With an allowance:
SBA loans held to maturity (1)		3,355		2,846		1,159
SBA 504 loans		1,297		1,297		217
Commercial loans
Commercial other		126		38		38
Commercial real estate		6,014		5,979		587
Total commercial loans		6,140		6,017		625
Total impaired loans with a related allowance		10,792		10,160		2,001
Total individually evaluated impaired loans:
SBA loans held to maturity (1)		4,707		3,712		1,159
SBA 504 loans		7,109		6,852		217
Commercial loans
Commercial other		2,158		2,071		38
Commercial real estate		11,234		10,731		587
Total commercial loans		13,392		12,802		625
Total individually evaluated impaired loans	$	25,208	$	23,366	$	2,001

(1) Balances are reduced by amount guaranteed by the SBA of $1.8million at December 31, 2012.

26

The following table presents the average recorded investments in impaired loans and the related amount of interest recognized during the time period in which the loans were impaired for the three months ended March 31, 2013 and 2012.  The average balances are calculated based on the month-end balances of impaired loans.  When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is on nonaccrual status, all payments are applied to principal under the cost recovery method, therefore no interest income is recognized.  The interestincome recognized on impaired loans noted below represents primarily accruing troubled debt restructurings and nominalamounts of income recognized on a cash basis for well-collateralized impaired loans.

	For the three months ended March 31,
	2013				2012
(In thousands)	Average recorded investment		Interest income recognized on impaired loans		Average recorded investment		Interest income recognized on impaired loans
SBA loans held to maturity (1)	$	3,542	$	57	$	5,754	$	56
SBA 504 loans		7,485		88		6,463		70
Commercial loans
Commercial other		2,042		61		2,769		21
Commercial real estate		11,026		83		18,360		130
Commercial real estate construction		135		-		533		-
Residential mortgage loans
Residential mortgages		2,757		-		1,650		-
Residential construction		-		-		2,169		-
Purchased residential mortgages		2,149		-		2,006		-
Consumer loans
Home equity		338		8		285		-
Consumer other		3		-		11		-
Total	$	29,477	$	297	$	40,000	$	277

(1) Balances are reduced by the average amount guaranteed by the Small Business Administration of $1.7million and $639thousand for the three months ended March 31, 2013 and 2012, respectively.

Troubled Debt Restructurings

The Company's loan portfolio also includes certain loans that have been modified in a troubled debt restructuring (“TDR”). TDRs occur when a creditor, for economic or legal reasons related to a debtor’s financial condition, grants a concession to the debtor that it would not otherwise consider, unless it results in a delay in payment that is insignificant. These concessions typically include reductions in interest rate, extending the maturity of a loan, or a combination of both. When the Company modifies a loan, management evaluates for any possible impairment using either the discounted cash flows method, where the value of the modified loan is based on the present value of expected cash flows, discounted at the contractual interest rate of the original loan agreement, or by using the fair value of the collateral less selling costs if the loan is collateral-dependent. If management determines that the value of the modified loan is less than the recorded investment in the loan, impairment is recognized by segment or class of loan, as applicable, through an allowance estimate or charge-off to the allowance. This process is used, regardless of loan type, and for loans modified as TDRs that subsequently default on their modified terms.

TDRs of $16.2 million and $14.7 million are included in the impaired loan numbers listed above as of March 31, 2013 and December 31, 2012,  respectively.  Specific reserves for these TDRs were  $490 thousand and $659 thousand as of March 31, 2013 and December 31, 2012, respectively.  At March 31, 2013,  $1.1 million of TDRs were in nonaccrual status,  consistent with December 31, 2012.  The remaining TDRs are in accrual status since they continue to perform in accordance with their restructured terms.  There are no commitments to lend additional funds on these loans. 

The following table details loans modified during the three months ended March 31, 2013 and 2012, including the number of modifications, the recorded investment at the time of the modification and the quarter-to-date impact to interest income as a result of the modification.  

	For the three months ended March 31,
	2013						2012
(In thousands, except number of contracts)	Number of contracts		Recorded investment at time of modification		Impact of interest rate change on income		Number of contracts		Recorded investment at time of modification		Impact of interest rate change on income
Commercial loans
Commercial other		-	$	-	$	-		3	$	1,291	$	-
Commercial real estate		1		2,684		-		3		1,856		-
Total		1	$	2,684	$	-		6	$	3,147	$	-

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There were no loans modified as a  TDR within the previous 12 months where a concession was made and the loan subsequently defaulted at some point during the threemonths ended March 31, 2013 or 2012.  In this case, subsequent default is defined as 90 days past due or transferred to nonaccrual status. 

To date, the Company’s TDRs consisted of interest rate reductions, interest only periods and maturity extensions.  There has been no principal forgiveness.   The following tables show the types of modifications done during the three months ended March 31, 2013 and 2012, with the respective loan balances as of those period ends:

	For the three months ended March 31, 2013
(In thousands)	Commercial real estate		Total
Type of modification:
Interest only with reduced interest rate	$	2,684	$	2,684
Total TDRs	$	2,684	$	2,684

	For the three months ended March 31, 2012
(In thousands)	Commercial other		Commercial real estate		Total
Type of modification:
Interest only	$	1,291	$	1,856	$	3,147
Total TDRs	$	1,291	$	1,856	$	3,147

Note 9. Allowance for Loan Losses andReserve for Unfunded Loan Commitments

Allowance for Loan Losses

The Company has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio.  At a minimum, the adequacy of the allowance for loan losses is reviewed by management on a quarterly basis.  For purposes of determining the allowance for loan losses, the Company has segmented the loans in its portfolio by loan type.  Loans are segmented into the following pools: SBA 7(a), SBA 504, commercial, residential mortgages, and consumer loans.  Certain portfolio segments are further broken down into classes based on the associated risks within those segments and the type of collateral underlying each loan.  Commercial loans are divided into the following three classes: commercial real estate, commercial real estate construction and commercial other.  Residential mortgage loans are divided into the following three classes: Residential mortgages, residential construction and purchased mortgages.  Consumer loans are divided into two classes as follows:  Home equity and other.

The standardized methodology used to assess the adequacy of the allowance includes the allocation of specific and general reserves.  The same standard methodology is used, regardless of loan type.  Specific reserves are made to individual impaired loans and troubled debt restructurings (see Note 1 for additional information on this term).  The general reserve is set based upon a representative average historical net charge-off rate adjusted for the following environmental factors: delinquency and impairment trends, charge-off and recovery trends, changes in the volume of restructured loans, volume and loan term trends, changes in risk and underwriting policy trends, staffing and experience changes, national and local economic trends, industry conditions and credit concentration changes.  Beginning in the third quarter of 2009, when calculating the five-year historical net charge-off rate, the Company weights the past three years more heavily due to the higher amount of charge-offs experienced during those years.  All of the environmental factors are ranked and assigned a basis points value based on the following scale: low, low moderate, moderate, high moderate and high risk.  Each environmental factor is evaluated separately for each class of loans and risk weighted based on its individual characteristics. 

· For SBA 7(a), SBA 504 and commercial loans, the estimate of loss based on pools of loans with similar characteristics is made through the use of a standardized loan grading system that is applied on an individual loan level and updated on a continuous basis.  The loan grading system incorporates reviews of the financial performance of the borrower, including cash flow, debt-service coverage ratio, earnings power, debt level and equity position, in conjunction with an assessment of the borrower's industry and future prospects.  It also incorporates analysis of the type of collateral and the relative loan to value ratio.

· For residential mortgage and consumer loans, the estimate of loss is based on pools of loans with similar characteristics.  Factors such as credit score, delinquency status and type of collateral are evaluated.  Factors are updated frequently to capture the recent behavioral characteristics of the subject portfolios, as well as any changes in loss mitigation or credit origination strategies, and adjustments to the reserve factors are made as needed.

According to the Company’s policy, a loss (“charge-off”) is to be recognized and charged to the allowance for loan losses as soon as a loan is recognized as uncollectable.  All credits which are 90 days past due must be analyzed for the Company’s ability to collect on the credit.  Once a loss is known to exist, the charge-off approval process is immediately expedited.  This charge-off policy is followed for all loan types.

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The allocated allowance is the total of identified specific and general reserves by loan category.  The allocation is not necessarily indicative of the categories in which future losses may occur.  The total allowance is available to absorb losses from any segment of the portfolio.  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 methodologies for estimating allocated and general reserves in the portfolio. The following tables detail the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2013 and 2012:

	For the three ended March 31, 2013
(In thousands)	SBA held to maturity		SBA 504		Commercial		Residential		Consumer		Unallocated		Total
Balance, beginning of period	$	3,378	$	1,312	$	7,091	$	1,769	$	524	$	684	$	14,758
Charge-offs		(570)		(200)		(375)		(125)		(59)		-		(1,329)
Recoveries		137		25		101		2		1		-		266
Net charge-offs		(433)		(175)		(274)		(123)		(58)		-		(1,063)
Provision for loan losses charged to expense		463		159		62		231		90		(355)		650
Balance, end of period	$	3,408	$	1,296	$	6,879	$	1,877	$	556	$	329	$	14,345

	For the three ended March 31, 2012
(In thousands)	SBA held to maturity		SBA 504		Commercial		Residential		Consumer		Unallocated		Total
Balance, beginning of period	$	4,088	$	1,423	$	8,129	$	1,703	$	536	$	469	$	16,348
Charge-offs		(615)		(227)		(346)		(113)		-		-		(1,301)
Recoveries		53		28		11		-		-		-		92
Net charge-offs		(562)		(199)		(335)		(113)		-		-		(1,209)
Provision for loan losses charged to expense		113		61		567		180		(9)		288		1,200
Balance, end of period	$	3,639	$	1,285	$	8,361	$	1,770	$	527	$	757	$	16,339

The following tables present loans and their related allowance for loan losses, by portfolio segment, as of March 31, 2013 and December 31, 2012:

	March 31, 2013
(In thousands)	SBA held to maturity		SBA 504		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses ending balance:
Individually evaluated for impairment	$	1,050	$	206	$	423	$	-	$	-	$	-	$	1,679
Collectively evaluated for impairment		2,358		1,090		6,456		1,877		556		329		12,666
Total	$	3,408	$	1,296	$	6,879	$	1,877	$	556	$	329	$	14,345
Loan ending balances:
Individually evaluated for impairment	$	3,498	$	5,501	$	14,252	$	-	$	-	$	-	$	23,251
Collectively evaluated for impairment		53,370		34,283		296,397		136,345		46,369		-		566,764
Total	$	56,868	$	39,784	$	310,649	$	136,345	$	46,369	$	-	$	590,015

	December 31, 2012
(In thousands)	SBA held to maturity		SBA 504		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses ending balance:
Individually evaluated for impairment	$	1,159	$	217	$	625	$	-	$	-	$	-	$	2,001
Collectively evaluated for impairment		2,219		1,095		6,466		1,769		524		684		12,757
Total	$	3,378	$	1,312	$	7,091	$	1,769	$	524	$	684	$	14,758
Loan ending balances:
Individually evaluated for impairment	$	3,712	$	6,852	$	12,802	$	-	$	-	$	-	$	23,366
Collectively evaluated for impairment		54,881		34,586		288,762		132,094		46,410		-		556,733
Total	$	58,593	$	41,438	$	301,564	$	132,094	$	46,410	$	-	$	580,099

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Changes in Methodology:

The Company did not make any changes to its allowance for loan losses methodology in the current period.

Reserve for Unfunded Loan Commitments

In addition to the allowance for loan losses, the Company maintains a reserve for unfunded loan commitments at a level that management believes is adequate to absorb estimated probable losses.  Adjustments to the reserve are made through other expense and applied to the reserve which is classified as other liabilities.  At March 31, 2013, a $117 thousand commitment reserve was reported on the balance sheet as an “other liability”, compared to an  $87 thousand commitment reserve at December 31, 2012.

Note 10.NewAccountingPronouncements

There are currently no new accounting pronouncements that are applicable to the Company that have not already been adopted or addressed in previous filings.

ITEM 2Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the 2012 consolidated audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012.  When necessary, reclassifications have been made to prior period data throughout the following discussion and analysis for purposes of comparability. This Quarterly Report on Form 10-Q contains certain “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which may be identified by the use of such words as “believe”, “expect”, “anticipate”, “should”, “planned”, “estimated” and “potential”.  Examples of forward looking statements include, but are not limited to, estimates with respect to the financial condition, results of operations and business of Unity Bancorp, Inc. that are subject to various factors which could cause actual results to differ materially from these estimates.  These factors include, in addition to those items contained in the Company’s Annual Report on Form 10-K under Item IA-Risk Factors, as updated by our subsequent Quarterly Reports on Form 10-Q, the following: changes in general, economic, and market conditions, legislative and regulatory conditions, or the development of an interest rate environment that adversely affects Unity Bancorp, Inc.’s interest rate spread or other income anticipated from operations and investments.

Overview

Unity Bancorp, Inc. (the “Parent Company”) is incorporated in New Jersey and is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended.  Its wholly-owned subsidiary, Unity Bank (the “Bank” or, when consolidated with the Parent Company, the “Company”) was granted a charter by the New Jersey Department of Banking and Insurance and commenced operations on September 13, 1991.  The Bank provides a full range of commercial and retail banking services through 15 branch offices located in Hunterdon, Somerset, Middlesex, Union and Warren counties in New Jersey, and Northampton County in Pennsylvania.  These services include the acceptance of demand, savings, and time deposits and the extension of consumer, real estate, Small Business Administration and other commercial credits. Unity Investment Services, Inc., a wholly-owned subsidiary of the Bank, is used to hold part of the Bank’s investment portfolio.

Unity (NJ) Statutory Trust II is a statutory business trust and wholly owned subsidiary of Unity Bancorp, Inc. On July 24, 2006, the Trust issued $10.0 million of trust preferred securities to investors.  Unity (NJ) Statutory Trust III is a statutory business trust and wholly owned subsidiary of Unity Bancorp, Inc. On December 19, 2006, the Trust issued $5.0 million of trust preferred securities to investors.  These floating rate securities are treated as subordinated debentures on the Company’s financial statements.  However, they qualify as Tier I Capital for regulatory capital compliance purposes, subject to certain limitations.  The Company does not consolidate the accounts and related activity of any of its business trust subsidiaries.

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Earnings Summary

Net income available to common shareholders totaled $796 thousand, or $0.10 per diluted share for the quarter ended March 31, 2013, a 56.6 percent increase compared to $509 thousand, or $0.07 per diluted share for the same period a year ago.  Return on average assets and average common equity for the quarter were 0.59% and 5.65%, respectively, compared to 0.45% and 3.81% for the same period a year ago.  The continued improvement in our operating results is the product of our strategic initiatives, which include the continued reduction of our out of market SBA portfolio, expansion of our in-market business relationships and further reduction in our cost of funds.

First quarter highlights include:

· A 9.1 percent increase in commercial loans from a year ago.

· A 33.1percentdecrease in nonperforming assets from a year ago.

· A 45.8 percent decrease in the loan loss provision compared to prior period’s quarter.

· Noninterest-bearing deposits reached a  record high of $118.2 million.

· Negotiated the purchase contract for three of our currently leased branch locations, which closed April 17, 2013, that will result in estimated future cost savings in excess of $200 thousand.

The Company's quarterly performance ratios may be found in the table below.

	For the three months ended March 31,
	2013			2012
Net income per common share - Basic (1)	$	0.11		$	0.07
Net income per common share - Diluted (1)	$	0.10		$	0.07
Return on average assets		0.59	%		0.45	%
Return on average equity (2)		5.65	%		3.81	%
Efficiency ratio		73.91	%		71.80	%

(1) Defined as net income adjusted for dividends accrued and accretion of discount on perpetual preferred stock divided by weighted average shares outstanding.

(2) Defined as net income adjusted for dividends accrued and accretion of discount on perpetual preferred stock divided by average shareholders' equity (excluding preferred stock).

Net Interest Income

The primary source of the Company’s operating income is net interest income,  which is the difference between interest and dividends earned on earning assets and fees earnedon loans, and interest paid on interest-bearing liabilities.  Earning assets include loans to individuals and businesses, investment securities, interest-earning deposits and federal funds sold.  Interest-bearing liabilities include interest-bearing checking, savings and time deposits, Federal Home Loan Bank advances and other borrowings.  Net interest income is determined by the difference between the yields earned on earning assets and the rates paid on interest-bearing liabilities (“net interest spread”) and the relative amounts of earning assets and interest-bearing liabilities.  The Company’s net interest spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand, deposit flows and general levels of nonperforming assets.

During the quarter ended March 31, 2013, tax-equivalent net interest income amounted to $6.7 million, a decrease of $129 thousand or 1.9 percent when compared to the same period in 2012.  Net interest margin decreased 4 basis points to 3.52 percent for the quarter ended March 31, 2013, compared to 3.56 percent for the same period in 2012.  The net interest spread was 3.29 percent for the first quarter of 2013, a 1 basis point decrease compared to the same period in 2012.

During the three months ended March 31, 2013, tax-equivalent interest income was $8.4 million, a decrease of  $755 thousand or 8.3 percent when compared to the same period in the prior year.  This decrease was driven by the lower average yield on earning assets, partially offset by a shift in the mix of earning assets as average loans increased:

× Of the $755 thousand decrease in interest income on a tax-equivalent basis, $788 thousand was attributed to reduced yields on average interest-earning assets, partially offset by a $33 thousand increase in interest income due to the increase volume of average interest-earning assets.

× The yield on interest-earning assets decreased 38 basis points to 4.33 percent for the three months ended March 31, 2013 when compared to the same period in 2012, due to continued re-pricing in a lower overall interest rate environment.  Yields on most earning assets, particularly those with variable rates, fell due to the continued low market rates.

× The average volume of interest-earning assets increased $1.0 million to $778.4 million for the first quarter of 2013 compared to $777.4 million for the same period in 2012. This was due primarily to a $5.2 million increase in average loans, partially offset bya $2.1 million decrease in Federal funds sold and interest-bearing deposits and a $1.9 million decrease in average investment securities.

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Total interest expense was $1.6 million for the three months ended March 31, 2013, a decrease of $626 thousand or 27.8 percent compared to the same period in 2012.  This decrease was driven by the continued lower overall interest rate environment, the shift in deposit mix away from higher priced products and a decrease in the average volume of interest-bearing liabilities:

× Of the $626 thousand decrease in interest expense, $471 thousand was due to a decrease in the rates paid on interest-bearing liabilities and $155 thousand was attributed to the decrease in the volume of average interest-bearing liabilities.

× The average cost of interest-bearing liabilities decreased 37 basis points to 1.04 percent, primarily due to the re-pricing of deposits in a lower interest rate environment and the expiration of a high rate interest rate swap agreement in March 2012.  The cost of interest-bearing deposits decreased 41 basis points to 0.62 percent for the first quarter of 2013 and the cost of borrowed funds and subordinated debentures decreased 16 basis points to 3.54 percent.

× The lower cost of funding was also attributed to a shift in the mix of deposits from higher cost time deposits to lower cost products as part of management’s strategy to restructure the deposit portfolio.

× Interest-bearing liabilities averaged $627.3 million for the first quarter of 2013, a decrease of $12.4 million or 1.9 percent, compared to the prior year’s quarter.  The decrease in interest-bearing liabilities was a result of a decrease in average time deposits, partially offset by an increase in average savings deposits and interest-bearing demand deposits.

Our net interest income continues to be impacted by the sustained low interest rate environment, which the Federal Open Market Committee (“FOMC”) of the Federal Reserve Board forecasts will continue at least as long as the unemployment rate remains above 6.5 percent.  This rate environment has resulted in a tighter net interest margin as our earning assets continue to re-price at lower rates.  Partially offsetting these declines are lower funding costs; however the reduction in yield on earning assets is anticipated to exceed the benefits of further declines in the cost of funds from already low levels.

The following table reflects the components of net interest income, setting forth for the periods presented herein: (1) average assets, liabilities and shareholders’ equity, (2) interest income earned on interest-earning assets and interest expense paid on interest-bearing liabilities, (3) average yields earned on interest-earning assets and average rates paid on interest-bearing liabilities, (4) net interest spread, and (5) net interest income/margin on average earning assets. Rates/Yields are computed on a fully tax-equivalent basis, assuming a federal income tax rate of 34 percent.

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Consolidated Average Balance Sheets

(Dollar amounts in thousands, interest amounts and interest rates/yields on a fully tax-equivalent basis)

	For the three months ended
	March 31, 2013							March 31, 2012
	Average Balance		Interest		Rate/Yield			Average Balance		Interest		Rate/Yield
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits	$	62,530	$	14		0.09	%	$	64,660	$	32		0.20	%
Federal Home Loan Bank stock		3,989		44		4.47			4,088		51		5.02
Securities:
Taxable		100,062		647		2.59			102,624		752		2.93
Tax-exempt		18,475		178		3.85			17,851		210		4.71
Total securities (A)		118,537		825		2.79			120,475		962		3.19
Loans:
SBA loans		65,386		777		4.75			71,760		924		5.15
SBA 504 loans		41,135		651		6.42			51,710		759		5.90
Commercial loans		304,790		4,001		5.32			284,237		4,183		5.92
Residential mortgage loans		135,886		1,550		4.56			132,824		1,655		4.98
Consumer loans		46,111		509		4.48			47,608		560		4.73
Total loans (B)		593,308		7,488		5.09			588,139		8,081		5.52
Total interest-earning assets	$	778,364	$	8,371		4.33	%	$	777,362	$	9,126		4.71	%
Noninterest-earning assets:
Cash and due from banks		19,737							15,949
Allowance for loan losses		(14,998)							(16,788)
Other assets		37,905							40,287
Total noninterest-earning assets		42,644							39,448
Total assets	$	821,008						$	816,810
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	118,668	$	101		0.35	%	$	108,988	$	136		0.50	%
Savings deposits		295,520		177		0.24			283,261		354		0.50
Time deposits		122,695		546		1.80			156,999		913		2.34
Total interest-bearing deposits		536,883		824		0.62			549,248		1,403		1.03
Borrowed funds and subordinated debentures		90,465		800		3.54			90,465		847		3.70
Total interest-bearing liabilities	$	627,348	$	1,624		1.04	%	$	639,713	$	2,250		1.41	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits		113,000							100,496
Other liabilities		3,242							3,249
Total noninterest-bearing liabilities		116,242							103,745
Total shareholders' equity		77,418							73,352
Total liabilities and shareholders' equity	$	821,008						$	816,810
Net interest spread			$	6,747		3.29	%			$	6,876		3.30	%
Tax-equivalent basis adjustment				(58)							(68)
Net interest income			$	6,689						$	6,808
Net interest margin						3.52	%						3.56	%

(A) Yields related to securities exempt from federal and state income taxes are stated on a fully tax-equivalent basis.  They are reduced by the nondeductible portion of interest expense, assuming a federal tax rate of 34 percent and applicable state rates.

(B) The loan averages are stated net of unearned income, and the averages include loans on which the accrual of interest has been discontinued.

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The rate volume table below presents an analysis of the impact on interest income and expense resulting from changes in average volume and rates over the periods presented. Changes that are not due to volume or rate variances have been allocated proportionally to both, based on their relative absolute values. Amounts have been computed on a tax-equivalent basis, assuming a federal income tax rate of 34 percent.

	For the three months ended March 31, 2013 versus March 31, 2012
	Increase (decrease) due to change in:
(In thousands on a tax-equivalent basis)	Volume		Rate		Net
Interest income:
Federal funds sold and interest-bearing deposits	$	(1)	$	(17)	$	(18)
Federal Home Loan Bank stock		(1)		(6)		(7)
Securities		(12)		(125)		(137)
Loans		47		(640)		(593)
Total interest income	$	33	$	(788)	$	(755)
Interest expense:
Demand deposits	$	10	$	(45)	$	(35)
Savings deposits		14		(191)		(177)
Time deposits		(179)		(188)		(367)
Total interest-bearing deposits		(155)		(424)		(579)
Borrowed funds and subordinated debentures		-		(47)		(47)
Total interest expense		(155)		(471)		(626)
Net interest income - fully tax-equivalent	$	188	$	(317)	$	(129)
Decrease in tax-equivalent adjustment						10
Net interest income					$	(119)

Provision for Loan Losses

The provision for loan losses totaled $650 thousand for the three months ended March 31, 2013, compared to $1.2 million for the three months ended March 31, 2012.  Each period’s loan loss provision is the result of management’s analysis of the loan portfolio and reflects changes in the size and composition of the portfolio, the level of net charge-offs, delinquencies, current economic conditions and other internal and external factors impacting the risk within the loan portfolio. Additional information may be found under the captions “Financial Condition-Asset Quality” and “Financial Condition - Allowance for Loan Losses and Reserve for Unfunded Loan Commitments.” The current provision is considered appropriate under management’s assessment of the adequacy of the allowance for loan losses.

Noninterest Income

The following table shows the components of noninterest income for the three months ended March 31, 2013 and 2012:

	For the three months ended March 31,
(In thousands)	2013		2012
Branch fee income	$	347	$	386
Service and loan fee income		304		302
Gain on sale of SBA loans held for sale, net		241		157
Gain on sale of mortgage loans, net		477		411
BOLI income		70		73
Net security gains		226		224
Other income		160		162
Total noninterest income	$	1,825	$	1,715

Our noninterest income consists primarily of branch and loan fee income, gains on the sale of SBA and residential mortgage loans and BOLI income.  For the three months ended March 31, 2013, noninterest income amounted to $1.8 million, an increase of $110 thousand from the prior year period.  The increase during the three month period was driven by higher gains on the sale of residential mortgage and SBA loans, partially offset by lower levels of branch fee income.

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Changes in our noninterest income for thethree months ended March 31, 2013 versus 2012 reflect:

· Branch fee income, which consists of deposit service charges and overdraft fees, decreased $39 thousand for the quarterly period due to lower overdraft fees.

· Service and loan fee income increased $2 thousand when compared to the same period in the prior year. 

· Gains on SBA loan sales increased $84 thousand for the quarter due to higher premiums on the sale of $2.3 million in loans during the period.

· Gains on sales of residential mortgage loans increased $66 thousand on a higher volume of loan sales.  For the three month period, $22.6 million in residential mortgage loans were sold compared to $21.2 million in the first quarter of 2012.

· The increase in the cash surrender value of BOLI remained relatively flat when compared to the same periods in the prior year, with income of $70 thousand and $73 thousand for the three months ended March 31, 2013 and 2012, respectively.

· Net realized gains on the sale of securities amounted to $226 thousand, compared to gains of $224 thousand for the same period in the prior year.  For additional information, see Note 7 - Securities.

· Other income decreased $2 thousand when compared to the same period in the prior year.

Noninterest Expense

The following table presents a breakdown of noninterest expense for the three months ended March 31, 2013 and 2012:

	For the three months ended March 31,
(In thousands)	2013		2012
Compensation and benefits	$	3,176	$	3,182
Occupancy		694		609
Processing and communications		561		534
Furniture and equipment		365		362
Professional services		190		190
Loan collection costs		177		180
OREO expenses		127		124
Deposit insurance		149		171
Advertising		120		146
Other expenses		567		461
Total noninterest expense	$	6,126	$	5,959

Noninterest expense totaled $6.1 million and $6.0 million for the three months ended March 31, 2013 and 2012, respectively.  In March 2012, we opened our Washington Township, New Jersey branch. 

Changes in noninterest expense for the three months ended March 31, 2013 versus 2012 reflect:

· Compensation and benefits expense, the largest component of noninterest expense, decreased $6 thousand.  Benefits expense decreased, however this was partially offset by an increase inemployer taxes.

· Occupancy expense increased $85 thousand due to higher seasonal snow removal expenses, increased building depreciation expenses related to the Washington branch, and additional rental expense due to the termination of a sublease during 2012.

· Processing and communications expenses increased $27 thousand due to expenses related to our check cashing, merchant services and mortgage business.

· Furniture and equipment expense increased $3 thousand, primarily due to increased software maintenance, depreciation, and ATM maintenance expenses.

· Professional service fees remained flat at $190 thousand when compared to the same period in 2012. 

· Loan collection costs decreased $3 thousand, due to lower appraisal fees.

· OREO expenses remained relatively flat at $127 thousand for the first quarter of 2013, compared to $124 thousand for the first quarter of 2012.

· Deposit insurance expense decreased $22 thousand for the quarter ended March 31, 2013 due to a lower assessment basis.

· Advertising expense decreased $26 thousand for the quarter ended March 31, 2013 due to a reduction in promotional gift expenses, the expiration of a third party marketing agreement and reduced promotional marketing.

· Other expenses increased $106 thousand for the quarter due to higher employee recruiting, increased director fees and an increase to the reserve for unfunded loan commitments. 

Income Tax Expense

For the quarter ended March 31, 2013, the Company reported income tax expense of $538 thousand for an effective tax rate of 31.0 percent, compared to an income tax expense of $459 thousand and effective tax rate of 33.7 percent for the prior year’s quarter.

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Financial Condition at March 31, 2013

Total assets increased $7.5 million or 0.9 percent, to $827.2 million at March 31, 2013, compared to $819.7 million at December 31, 2012. This increase was primarily due to increases of $9.5 million in loans, $8.3 million in securities, and $3.7 million in premises and equipment, partially offset by a $14.2 million decrease in cash and cash equivalents.  Total deposits increased $3.4 million, due to increases of $3.7 million in noninterest-bearing demand deposits,  $802 thousand in savings deposits, and $536 thousand in interest-bearing demand deposits, partially offset by a decrease of $1.7 million in time deposits.  There were no changes to borrowed funds and subordinated debentures.  Total shareholders’ equity increased $647thousand over year-end 2012, primarily due to the increase in net income.  These fluctuations are discussed in further detail in the paragraphs that follow. 

Securities Portfolio

The Company’s securities portfolio consists of available for sale (“AFS”) and held to maturity (“HTM”) investments. Management determines the appropriate security classification of available for sale or held to maturity at the time of purchase. The investment securities portfolio is maintained for asset-liability management purposes, as well as for liquidity and earnings purposes.

AFS securities are investments carried at fair value that may be sold in response to changing market and interest rate conditions or for other business purposes. Activity in this portfolio is undertaken primarily to manage liquidity and interest rate risk, to take advantage of market conditions that create economically attractive returns and as an additional source of earnings. AFS securities consist primarily of obligations of U.S. Government sponsored entities, obligations of state and political subdivisions, mortgage-backed securities, and corporate and other securities.

AFS securities totaled $91.1 million at March 31, 2013, an increase of $1.5 million or 1.7 percent, compared to $89.5 million at December 31, 2012.  This net increase was the result of:

· $13.1 million in purchases, primarily of municipal and agency securities, partially offset by

· $5.7 million in principal payments, maturities and called bonds,

· $5.1 million in sales net of realized gains, which consisted of asset-backed securities and corporate bonds,

· $153 thousand in net amortization of premiums, and

· $635 thousand of depreciation in the market value of the portfolio.  At March 31, 2013, the portfolio had net unrealized gains of $1.6 million compared to net unrealized gains of $2.2 million at December 31, 2012.  These net unrealized gains are reflected net of tax in shareholders’ equity as accumulated other comprehensive income.

The weighted average life of AFS securities, adjusted for prepayments, amounted to 4.2 years at March 31, 2013 and 3.5 years at December 31, 2012.

HTM securities, which are carried at amortized cost, are investments for which there is the positive intent and ability to hold to maturity. The portfolio is comprised of obligations of state and political subdivisions and mortgage-backed securities.

HTM securities were $28.3 million at March 31, 2013, an increase of $6.8 million or 31.4 percent, from year-end 2012.  This net increase was the result of:

· $8.3 million in purchases of three mortgage-backed securities, one agency and one corporate bond, partially offset by,

· $1.4 million in principal payments, and

· $54 thousand in net amortization of premiums.

The weighted average life of HTM securities, adjusted for prepayments, amounted to 6.8 years and 6.5 years at March 31, 2013 and December 31, 2012, respectively.  As of March 31, 2013 and December 31, 2012, the fair value of HTM securities was $28.9 million and $22.7 million, respectively.

The average balance of taxable securities amounted to $100.1 million for the three months ended March 31, 2013, compared to $102.6 million for the same period in 2012. The average yield earned on taxable securities decreased 34 basis points, to 2.59 percent for the three months ended March 31, 2013, from 2.93 percent for the same period in the prior year. The average balance of tax-exempt securities amounted to $18.5 million for the three months ended March 31, 2013, compared to $17.9 million for the same period in 2012. The average yield earned on tax-exempt securities decreased 86 basis points, to 3.85 percent for the three months ended March 31, 2013, from 4.71 percent for the same period in 2012.

Securities with a carrying value of $79.2 million and $78.4 million at March 31, 2013 and December 31, 2012, respectively, were pledged to secure Government deposits, secure other borrowings and for other purposes required or permitted by law.

Approximately 86 percent of the total investment portfolio had a fixed rate of interest at March 31, 2013.

See Note 7 to the accompanying Consolidated Financial Statements for more information regarding Securities.

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Loan Portfolio

The loan portfolio, which represents the Company’s largest asset group, is a significant source of both interest and fee income. The portfolio consists of SBA, SBA 504, commercial, residential mortgage and consumer loans. Each of these segments is subject to differing levels of credit and interest rate risk.

Total loans increased $9.5 million or 1.6 percent to $596.6 million at March 31, 2013, compared to $587.0 million at year-end 2012. Commercial loans and residential mortgages increased $9.1 million and  $4.3 million,  respectively, partially offset by declines in all other loan categories.

The following table sets forth the classification of loans by major category, including unearned fees and deferred costs and excluding the allowance for loan losses as of March 31, 2013 and December 31, 2012:

	March 31, 2013					December 31, 2012
(In thousands, except percentages)	Amount		% of total			Amount		% of total
SBA loans held to maturity	$	56,868		9.5	%	$	58,593		10.0	%
SBA 504 loans		39,784		6.7			41,438		7.1
Commercial loans		310,649		52.0			301,564		51.3
Residential mortgage loans		136,345		22.9			132,094		22.5
Consumer loans		46,369		7.8			46,410		7.9
Total loans held for investment		590,015		98.9			580,099		98.8
SBA loans held for sale		6,556		1.1			6,937		1.2
Total loans	$	596,571		100.0	%	$	587,036		100.0	%

Average loans increased $5.2 million or 0.9 percent from $588.1 million for the three months ended March 31, 2012, to $593.3 million for the same period in 2013.  The increase in average loans was due to increases in commercial and residential mortgage loans, partially offset bydeclines in all other portfolio types.  The yield on the overall loan portfolio fell 43 basis points to 5.09 percent for the three months ended March 31, 2013, compared to 5.52 percent for the same period in the prior year. This decrease was the result of new loan volume at lower rates and existing variable rate loan products repricing lower as rates remain low.

SBA 7(a) loans, on which the SBA historically has provided guarantees of up to 90 percent of the principal balance, are considered a higher risk loan product for the Company than its other loan products. These loans are made for the purposes of providing working capital, financing the purchase of equipment, inventory or commercial real estate. Generally, an SBA 7(a) loan has a deficiency in its credit profile that would not allow the borrower to qualify for a traditional commercial loan, which is why the government provides the guarantee. The deficiency may be a higher loan to value (“LTV”) ratio, lower debt service coverage (“DSC”) ratio or weak personal financial guarantees. In addition, many SBA 7(a) loans are for start up businesses where there is no history of financial information. Finally, many SBA borrowers do not have an ongoing and continuous banking relationship with the Bank, but merely work with the Bank on a single transaction. The Company’s SBA loans are generally sold in the secondary market with the nonguaranteed portion held in the portfolio as a loan held for investment.

SBA 7(a) loans held for sale, carried at the lower of cost or market, amounted to $6.6 million at March 31, 2013, a decrease of $381 thousand from December 31, 2012. SBA 7(a) loans held to maturity amounted to $56.9 million at March 31, 2013, a decrease of $1.7 million from $58.6 million at December 31, 2012. The yield on SBA loans, which are generally floating and adjust quarterly to the Prime rate, was 4.75 percent for the three months ended March 31, 2013, compared to 5.15 percent in the prior year.

The guarantee rates on SBA 7(a) loans range from 50 percent to 90 percent, with the majority of the portfolio having a guarantee rate of 75 percent at origination. The guarantee rates are determined by the SBA and can vary from year to year depending on government funding and the goals of the SBA program. The carrying value of SBA loans held for sale represents the guaranteed portion to be sold into the secondary market. The carrying value of SBA loans held to maturity represents the unguaranteed portion, which is the Company's portion of SBA loans originated, reduced by the guaranteed portion that is sold into the secondary market. Approximately $107.4 million and $109.9 million in SBA loans were sold but serviced by the Company at March 31, 2013 and December 31, 2012, respectively, and are not included on the Company’s balance sheet. There is no relationship or correlation between the guarantee percentages and the level of charge-offs and recoveries on the Company’s SBA 7(a) loans. Charge-offs taken on SBA 7(a) loans effect the unguaranteed portion of the loan. SBA loans are underwritten to the same credit standards irrespective of the guarantee percentage.

The SBA 504 program consists of real estate backed commercial mortgages where the Company has the first mortgage and the SBA has the second mortgage on the property. Generally, the Company has a 50 percent LTV ratio on SBA 504 program loans at origination. At March 31, 2013, SBA 504 loans totaled $39.8 million, a decrease of $1.7 million from $41.4 million at December 31, 2012. The yield on SBA 504 loans increased52 basis points to 6.42 percent for the quarter ended March 31, 2013 from 5.90 percent for the first quarter of 2012.

Commercial loans are generally made in the Company’s marketplace for the purpose of providing working capital, financing the purchase of equipment, inventory or commercial real estate and for other business purposes. These loans amounted to $310.6 million at March 31, 2013, an increase of $9.1 million from year-end 2012. The yield on commercial loans was 5.32 percent for the first quarter of 2013, compared to 5.92 percent for the same period in 2012 due to the low rate environment.

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Residential mortgage loans consist of loans secured by 1 to 4 family residential properties. These loans amounted to $136.3 million at March 31, 2013, an increase of $4.3 million from year-end 2012. Sales of mortgage loans totaled $22.6 million for the three months ended March 31, 2013. The yield on residential mortgages was 4.56 percent for the first quarter of 2013, compared to 4.98 percent for the same period in 2012.  

Consumer loans consist of home equity loans and loans for the purpose of financing the purchase of consumer goods, home improvements, and other personal needs, and are generally secured by the personal property being purchased. These loans amounted to $46.4 million at March 31, 2013,  flat from December 31, 2012. The yield on consumer loans was 4.48 percent for the quarter ended March 31, 2013, compared to 4.73 percent for the quarter ended March 31, 2012.  

There are no concentrations of loans to any borrowers or group of borrowers exceeding 10 percent of the total loan portfolio and no foreign loans in the portfolio. As a preferred SBA lender, a portion of the SBA portfolio is to borrowers outside the Company’s lending area. During late 2008, the Company withdrew from SBA lending outside of its primary trade area, but continues to offer SBA loan products as an additional credit product within its primary trade area.

In the normal course of business, the Company may originate loan products whose terms could give rise to additional credit risk. Interest-only loans, loans with high LTV ratios, construction loans with payments made from interest reserves and multiple loans supported by the same collateral (e.g. home equity loans) are examples of such products. However, these products are not material to the Company’s financial position and are closely managed via credit controls that mitigate their additional inherent risk. Management does not believe that these products create a concentration of credit risk in the Company’s loan portfolio. The Company does not have any option adjustable rate mortgage loans.

The majority of the Company’s loans are secured by real estate.  Declines in the market values of real estate in the Company’s trade area impact the value of the collateral securing its loans.  This could lead to greater losses in the event of defaults on loans secured by real estate.  At March 31, 2013 and December 31, 2012, approximately95 percent of the Company’s loan portfolio was secured by real estate.

Troubled Debt Restructurings

Troubled debt restructurings (“TDRs”) occur when a creditor, for economic or legal reasons related to a debtor’s financial condition, grants a concession to the debtor that it would not otherwise consider. These concessions typically include reductions in interest rate, extending the maturity of a loan, or a combination of both. When the Company modifies a loan, management evaluates for any possible impairment using either the discounted cash flows method, where the value of the modified loan is based on the present value of expected cash flows, discounted at the contractual interest rate of the original loan agreement, or by using the fair value of the collateral less selling costs. If management determines that the value of the modified loan is less than the recorded investment in the loan, impairment is recognized by segment or class of loan, as applicable, through an allowance estimate or charge-off to the allowance. This process is used, regardless of loan type, and for loans modified as TDRs that subsequently default on their modified terms.

At March 31, 2013, there were sixteen loans totaling $16.2 million that were classified as TDRs by the Company and are deemed impaired, compared to sixteen such loans totaling $14.7 million at December 31, 2012.  Nonperforming loans included $1.1 million of TDRs as of March 31, 2013 and December 31, 2012.  Restructured loans that are placed in nonaccrual status may be removed after 6 months of contractual payments and the business showing the ability to service the debt going forward.  The remaining TDRs are in accrual status since they are performing in accordance with the restructured terms.  There are no commitments to lend additional funds on these loans. 

The following table presents a breakdown of performing and nonperforming TDRs by class as of March 31, 2013:

	March 31, 2013						December 31, 2012
(In thousands)	Performing TDRs		Nonperforming TDRs		Total TDRs		Performing TDRs		Nonperforming TDRs		Total TDRs
SBA loans held to maturity	$	922	$	123	$	1,045	$	929	$	126	$	1,055
SBA 504 loans		4,266		-		4,266		4,290		-		4,290
Commercial loans
Commercial other		949		-		949		949		-		949
Commercial real estate		8,931		961		9,892		7,408		961		8,369
Total	$	15,068	$	1,084	$	16,152	$	13,576	$	1,087	$	14,663

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Through March 31, 2013, our TDRs consisted of interest rate reductions, interest only periods and maturity extensions.  There has been no principal forgiveness.   The following table shows the types of modifications done to date by class through March 31, 2013:

	March 31, 2013
(In thousands)	SBA held to maturity		SBA 504		Commercial other		Commercial real estate		Total
Type of modification:
Interest only	$	445	$	-	$	949	$	2,533	$	3,927
Principal only		23		-		-		-		23
Interest only with reduced interest rate		-		-		-		4,525		4,525
Interest only with nominal principal		133		2,964		-		-		3,097
Extended maturity with reduced interest rate		-		-		-		2,834		2,834
Previously modified back to original terms		444		1,302		-		-		1,746
Total TDRs	$	1,045	$	4,266	$	949	$	9,892	$	16,152

Asset Quality

Inherent in the lending function is credit risk, which is the possibility a borrower may not perform in accordance with the contractual terms of their loan. A borrower’s inability to pay their obligations according to the contractual terms can create the risk of past due loans and, ultimately, credit losses, especially on collateral deficient loans. The Company minimizes its credit risk by loan diversification and adhering to strict credit administration policies and procedures. Due diligence on loans begins when we initiate contact regarding a loan with a borrower. Documentation, including a borrower’s credit history, materials establishing the value and liquidity of potential collateral, the purpose of the loan, the source of funds for repayment of the loan, and other factors, are analyzed before a loan is submitted for approval. The loan portfolio is then subject to on-going internal reviews for credit quality, as well as independent credit reviews by an outside firm.

The risk of loss is difficult to quantify and is subject to fluctuations in collateral values, general economic conditions and other factors. The current state of the economy and the downturn in the real estate market has resulted in increased loan delinquencies and defaults. In some cases, these factors have also resulted in significant impairment to the value of loan collateral. The Company values its collateral through the use of appraisals, broker price opinions, and knowledge of its local market. In response to the credit risk in its portfolio, the Company has increased staffing in its credit monitoring department and increased efforts in the collection and analysis of borrowers’ financial statements and tax returns.

Nonperforming assets consist of nonperforming loans and other real estate owned ("OREO"). Nonperforming loans consist of loans that are not accruing interest (nonaccrual loans) as a result of principal or interest being in default for a period of 90 days or more or when the ability to collect principal and interest according to the contractual terms is in doubt. When a loan is classified as nonaccrual, interest accruals discontinue and all past due interest previously recognized as income is reversed and charged against current period income. Generally, until the loan becomes current, any payments received from the borrower are applied to outstanding principal, until such time as management determines that the financial condition of the borrower and other factors merit recognition of a portion of such payments as interest income. Loans past due 90 days or more and still accruing interest are not included in nonperforming loans. Loans past due 90 days or more and still accruing generally represent loans that are well collateralized and in a continuing process that are expected to result in repayment or restoration to current status.

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The following table sets forth information concerning nonperforming assets and loans past due 90 days or more and still accruing interest at each of the periods presented:

(In thousands)	March 31, 2013			December 31, 2012			March 31, 2012
Nonperforming by category:
SBA loans held to maturity (1)	$	4,441		$	4,633		$	4,132
SBA 504 loans		1,235			2,562			2,715
Commercial loans		4,372			4,445			9,003
Residential mortgage loans		4,554			5,511			6,007
Consumer loans		302			317			349
Total nonperforming loans (2)	$	14,904		$	17,468		$	22,206
OREO		1,052			1,826			1,625
Total nonperforming assets	$	15,956		$	19,294		$	23,831
Past due 90 days or more and still accruing interest:
SBA loans held to maturity	$	212		$	-		$	355
SBA 504 loans		415			-			-
Commercial loans		-			109			926
Residential mortgage loans		4			-			1,884
Consumer loans		1			-			-
Total past due 90 days or more and still accruing interest	$	632		$	109		$	3,165
Nonperforming loans to total loans		2.50	%		2.98	%		3.81	%
Nonperforming loans and TDRs to total loans (3)		5.02			5.29			7.41
Nonperforming assets to total loans and OREO		2.67			3.28			4.08
Nonperforming assets to total assets		1.93			2.35			2.94
(1) Guaranteed SBA loans included above	$	1,863		$	1,849		$	555
(2) Nonperforming TDRs included above		1,084			1,087			2,287
(3) Performing TDRs		15,068			13,576			20,985

The current state of the economy impacts the Company’s level of delinquent and nonperforming loans by putting a strain on the Company’s borrowers and their ability to pay their loan obligations. Unemployment rates continue to be at elevated levels and businesses are reluctant to hire. Consequently, the Company’s nonperforming loans remain at an elevated level.

Nonperforming loans were $14.9 million at March 31, 2013, a $2.6 million decrease from $17.5 million at year-end 2012 and a $7.3 million decrease from $22.2 million at March 31, 2012.  Since year-end 2012, nonperforming loans in all segments decreased.  Included in nonperforming loans at March 31, 2013 are approximately $1.9 million of loans guaranteed by the SBA, compared to $1.8 million at December 31, 2012 and $555 thousand at March 31, 2012.  In addition, there were $632 thousand in loans past due 90 days or more and still accruing interest at March 31, 2013, compared to $109 thousandand $3.2 million at December 31, 2012 and March 31, 2012.

Other real estate owned (“OREO”) properties totaled $1.1 million at March 31, 2013, a decrease of $774thousand from $1.8 million at year-end 2012 and a $573 thousand decrease from $1.6 million at March 31, 2012.  During the three months ended March 31, 2013, the Company did nottake title to any new properties.  There was a valuation adjustment of $70 thousand on one existing OREO property and three OREO properties were sold, resulting in a net loss of $300 thousand on the sales charged to the allowance for loan losses.

The Company also monitors potential problem loans.  Potential problem loans are those loans where information about possible credit problems of borrowers causes management to have doubts as to the ability of such borrowers to comply with loan repayment terms.  These loans are not included in nonperforming loans as they continue to perform.  Potential problem loans totaled $5.3 million at March 31, 2013, an increase of $1.8million from $3.5 million at December 31, 2012.  The increase is due to the addition of two loans totaling $2.6 million during the quarter, partially offset by the removal of four loans totaling $863 thousand.

See Note 8 to the accompanying Consolidated Financial Statements for more information regarding Asset Quality.

Allowance for Loan Losses and Reserve for Unfunded Loan Commitments

Management reviews the level of the allowance for loan losses on a quarterly basis. The standardized methodology used to assess the adequacy of the allowance includes the allocation of specific and general reserves. Specific reserves are made to individual impaired loans, which have been defined to include all nonperforming loans and TDRs. The general reserve is set based upon a representative average historical net charge-off rate adjusted for certain environmental factors such as: delinquency and impairment trends, charge-off and recovery trends, volume and loan term trends, risk and underwriting policy trends, staffing and experience changes, national and local economic trends, industry conditions and credit concentration changes.

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When calculating the five-year historical net charge-off rate, the Company weights the past three years more heavily.  The Company believes using this approach is more indicative of future charge-offs.  All of the environmental factors are ranked and assigned a basis points value based on the following scale: low, low moderate, moderate, high moderate, and high risk. The factors are evaluated separately for each type of loan. For example, commercial loans are broken down further into commercial and industrial loans, commercial mortgages, construction loans, etc. Each type of loan is risk weighted for each environmental factor based on its individual characteristics.

According to the Company’s policy, a loss (“charge-off”) is to be recognized and charged to the allowance for loan losses as soon as a loan is recognized as uncollectable. All credits which are 90 days past due must be analyzed for the Company's ability to collect on the credit. Once a loss is known to exist, the charge-off approval process is immediately expedited.

During 2012, the Company decreased its loan loss provision in response to improvements in the inherent credit risk within its loan portfolio. The improved inherent credit risk was evidenced by a decrease in delinquent and nonperforming loans, as the economy continued to improve.

The allowance for loan losses totaled $14.3 million at March 31, 2013, compared to $14.8 million and $16.3 million at December 31, 2012and March 31, 2012,  respectively, with resulting allowance to total loan ratios of 2.40 percent, 2.51 percent, and 2.80 percent, respectively.  Net charge-offs amounted to $1.1 million for the three months ended March 31, 2013, compared to $1.2 million for the same period in 2012.  Net charge-offs to average loan ratios are shown in the table below for each major loan category.

	For the three months ended March 31,
(In thousands, except percentages)	2013			2012
Balance, beginning of period	$	14,758		$	16,348
Provision for loan losses charged to expense		650			1,200
Less: Chargeoffs
SBA loans held to maturity		570			615
SBA 504 loans		200			227
Commercial loans		375			346
Residential mortgage loans		125			113
Consumer loans		59			-
Total chargeoffs		1,329			1,301
Add: Recoveries
SBA loans held to maturity		137			53
SBA 504 loans		25			28
Commercial loans		101			11
Residential mortgage loans		2			-
Consumer loans		1			-
Total recoveries		266			92
Net chargeoffs		1,063			1,209
Balance, end of period	$	14,345		$	16,339
Selected loan quality ratios:
Net chargeoffs to average loans:
SBA loans held to maturity		2.69	%		3.15	%
SBA 504 loans		1.73			1.55
Commercial loans		0.36			0.47
Residential mortgage loans		0.37			0.34
Consumer loans		0.51			-
Total loans		0.73			0.83
Allowance to total loans		2.40			2.80
Allowance to nonperforming loans		96.25			73.58

In addition to the allowance for loan losses, the Company maintains a reserve for unfunded loan commitments that is maintained at a level that management believes is adequate to absorb estimated probable losses.  Adjustments to the reserve are made through other expense and applied to the reserve which is maintained in other liabilities.  At March 31, 2013, a $117 thousand commitment reserve was reported on the balance sheet as an “other liability”, compared to an  $87 thousand commitment reserve at December 31, 2012.

See Note 9 to the accompanying Consolidated Financial Statements for more information regarding the Allowance for Loan Losses and Reserve for Unfunded Loan Commitments.

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Deposits

Deposits, which include noninterest-bearing demand deposits, interest-bearing demand deposits, savings deposits and time deposits, are the primary source of the Company’s funds.  The Company offers a variety of products designed to attract and retain customers, with primary focus on building and expanding relationships.  The Company continues to focus on establishing a comprehensive relationship with business borrowers, seeking deposits as well as lending relationships.

Total deposits increased $3.4 million to $652.1 million at March 31, 2013, from $648.8 million at December 31, 2012.  This increase in deposits was due to increases of $3.7 million, $802 thousand and $536 thousand in noninterest-bearing deposits, savings deposits and interest-bearing demand deposits, respectively, partially offset by a decreaseof $1.7 million in time deposits.  The increases in noninterest-bearing deposits, interest-bearingdemand deposits and savings deposits were the result of continued sales initiatives and efforts by branch personnel to bring in deposit relationships.

The Company’s deposit composition at March 31, 2013 consisted of 45.3 percent savings deposits, 18.9 percent time deposits, 18.1 percent noninterest-bearing demand deposits and 17.7 percent interest-bearing demand deposits.  This deposit mix was consistent with that at December 31, 2012.

Borrowed Funds and Subordinated Debentures

Borrowed funds consist primarily of fixed rate advances from the Federal Home Loan Bank (“FHLB”) of New York and repurchase agreements.  These borrowings are used as a source of liquidity or to fund asset growth not supported by deposit generation.  Residential mortgages and investment securities collateralize the borrowings from the FHLB, while investment securities are pledged against the repurchase agreements.

Borrowed funds and subordinated debentures totaled $90.5 million at both March 31, 2013 and December 31, 2012 and are broken down in the following table:

(In thousands)	March 31, 2013		December 31, 2012
FHLB borrowings:
Fixed rate advances	$	30,000	$	30,000
Repurchase agreements		30,000		30,000
Other repurchase agreements		15,000		15,000
Subordinated debentures		15,465		15,465

At March 31, 2013, the Company had $67.4 million of additional credit available at the FHLB.  Pledging additional collateral in the form of 1 to 4 family residential mortgages or investment securities can increase the line with the FHLB.

Interest Rate Sensitivity

The principal objectives of the asset and liability management function are to establish prudent risk management guidelines, evaluate and control the level of interest-rate risk in balance sheet accounts, determine the level of appropriate risk given the business focus, operating environment, capital, and liquidity requirements, and actively manage risk within the Board approved guidelines.  The Company seeks to reduce the vulnerability of the operations to changes in interest rates, and actions in this regard are taken under the guidance of the Asset/Liability Management Committee (“ALCO”) of the Board of Directors.  The ALCO reviews the maturities and re-pricing of loans, investments, deposits and borrowings, cash flow needs, current market conditions, and interest rate levels.

The Company utilizes Modified Duration of Equity and Economic Value of Portfolio Equity (“EVPE”) models to measure the impact of longer-term asset and liability mismatches beyond two years.  The modified duration of equity measures the potential price risk of equity to changes in interest rates.  A longer modified duration of equity indicates a greater degree of risk to rising interest rates.  Because of balance sheet optionality, an EVPE analysis is also used to dynamically model the present value of asset and liability cash flows with rate shocks of 200 basis points.  The economic value of equity is likely to be different as interest rates change.  Results falling outside prescribed ranges require action by the ALCO.  The Company’s variance in the economic value of equity, as a percentage of assets with rate shocks of 200 basis points at March 31, 2013, is a decline of 0.94 percent in a rising-rate environment and a decline of 0.32 percent in a falling-rate environment.  The variances in the EVPE at March 31, 2013 are within the Board-approved guidelines of +/- 3.00 percent.  At December 31, 2012, the economic value of equity as a percentage of assets with rate shocks of 200 basis points was a decline of 0.47 percent in a rising-rate environment and a decline of 0.71 percent in a falling-rate environment. 

42

Liquidity

Consolidated Bank Liquidity

Liquidity measures the ability to satisfy current and future cash flow needs as they become due. A bank’s liquidity reflects its ability to meet loan demand, to accommodate possible outflows in deposits and to take advantage of interest rate opportunities in the marketplace.  Our liquidity is monitored by management and the Board of Directors through a Risk Management Committee, which reviews historical funding requirements, our current liquidity position, sources and stability of funding, marketability of assets, options for attracting additional funds, and anticipated future funding needs, including the level of unfunded commitments. Our goal is to maintain sufficient asset-based liquidity to cover potential funding requirements in order to minimize our dependence on volatile and potentially unstable funding markets.

The principal sources of funds at the Bank are deposits, scheduled amortization and prepayments of investment and loan principal, sales and maturities of investment securities and funds provided by operations.  While scheduled loan payments and maturing investments are relatively predictable sources of funds, deposit inflows and outflows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition.  The Consolidated Statement of Cash Flows provides detail on the Company’s sources and uses of cash, as well as an indication of the Company’s ability to maintain an adequate level of liquidity.  At March 31, 2013, the balance of cash and cash equivalents was $80.0 million, a decrease of $14.2 million from December 31, 2012.  A discussion of the cash provided by and used in operating, investing and financing activities follows.

Operating activities provided $2.0 million and $2.4 million in net cash for the three months ended March 31, 2013 and 2012, respectively. The primary sources of funds were net income from operations and adjustments to net income, such as the provision for loan losses, depreciation and amortization, and proceeds from the sale of mortgage and SBA loans held for sale, partially offset by originations of SBA and mortgage loans held for sale.

Investing activities used $19.3million and $12.1 million in net cash for the three months ended March 31, 2013 and 2012,  respectively.  Cash was primarily used to purchase securities and equipment and fund new loans, partially offset by cash inflows from maturities and paydowns on securities and proceeds from the sale of securities and OREO. 

× Securities.  The Consolidated Bank’s available for sale investment portfolio amounted to $90.9 million and $89.4 million at March 31, 2013 and December 31, 2012, respectively.  Projected cash flows from securities over the next twelve months are $29.3 million.

× Loans.  The SBA loans held for sale portfolio amounted to $6.6 million and $6.9 million at March 31, 2013 and December 31, 2012, respectively.  Sales of these loans provide an additional source of liquidity for the Company. 

× Outstanding Commitments.  The Company was committed to advance approximately $116.5 million to its borrowers as of March 31, 2013, compared to $87.2 million at December 31, 2012.  At March 31, 2013, $62.6 million of these commitments expire within one year, compared to $40.1 million at December 31, 2012.  The Company had $1.6 million in standby letters of credit at March 31, 2013 and December 31, 2012, which are included in the commitments amount noted above.  The estimated fair value of these guarantees is not significant.  The Company believes it has the necessary liquidity to honor all commitments.  Many of these commitments will expire and never be funded.

Financing activities provided $3.1 million in net cash for the three months ended March 31, 2013, compared to net cash used by financing activities of $1.1 millionfor the same period in the prior year, primarily due to an increase in the Company’s deposit base, partially offset by dividends paid on preferred stock.  

× Deposits.  As of March 31, 2013, deposits included $73.6 million of Government deposits, as compared to $74.2 million at year-end 2012. These deposits are generally short in duration and are very sensitive to price competition.  The Company believes that the current level of these types of deposits is appropriate.  Included in the portfolio were $68.5 million of deposits from nine municipalities.  The withdrawal of these deposits, in whole or in part, would not create a liquidity shortfall for the Company.

× Borrowed Funds.  Total FHLB borrowings amounted to $60.0 million and third party repurchase agreements totaled $15.0 million as of both March 31, 2013 and December 31, 2012.  As a member of the Federal Home Loan Bank of New York (FHLB), the Company can borrow additional funds based on the market value of collateral pledged.  At March 31, 2013,  pledging provided an additional $69.3 million in borrowing potential from the FHLB.  In addition, the Company can pledge additional collateral in the form of 1 to 4 family residential mortgages or investment securities to increase this line with the FHLB.  

Parent Company Liquidity

The Parent Company’s cash needs are funded by dividends paid by the Bank.  Other than its investment in the Bank and Unity Statutory Trusts II and III, the Parent Company does not actively engage in other transactions or business.  Only expenses specifically for the benefit of the Parent Company are paid using its cash, which typically includes the payment of operating expenses and cash dividends on the preferred stock issued to the U.S. Treasury.

At March 31, 2013, the Parent Company had $11.8 million in cash and cash equivalents and $168 thousand in investment securities valued at fair market value, compared to $11.9 million in cash and cash equivalents and $105 thousand in investment securities at December 31, 2012.  The decrease in cash at the Parent Company was primarily due to the payment of dividends on preferred stock.

43

Regulatory Capital

A significant measure of the strength of a financial institution is its capital base.  Federal regulators have classified and defined capital into the following components: (1) tier 1 capital, which includes tangible shareholders’ equity for common stock, qualifying preferred stock and certain qualifying hybrid instruments, and (2) tier 2 capital, which includes a portion of the allowance for loan losses, subject to limitations, certain qualifying long-term debt, preferred stock and hybrid instruments, which do not qualify for tier 1 capital.  The parent company and its subsidiary bank are subject to various regulatory capital requirements administered by banking regulators.  Quantitative measures of capital adequacy include the leverage ratio (tier 1 capital as a percentage of tangible assets), tier 1 risk-based capital ratio (tier 1 capital as a percent of risk-weighted assets) and total risk-based capital ratio (total risk-based capital as a percent of total risk-weighted assets).

Minimum capital levels are regulated by risk-based capital adequacy guidelines, which require the Company and the Bank to maintain certain capital as a percentage of assets and certain off-balance sheet items adjusted for predefined credit risk factors (risk-weighted assets).  Failure to meet minimum capital requirements can initiate certain mandatory and possibly discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines.  However, prompt corrective action provisions are not applicable to bank holding companies. At a minimum, tier 1 capital as a percentage of risk-weighted assets of 4 percent and combined tier 1 and tier 2 capital as a percentage of risk-weighted assets of 8 percent must be maintained.  

In addition to the risk-based guidelines, regulators require that a bank or holding company, which meets the regulator’s highest performance and operation standards, maintain a minimum leverage ratio of 3 percent.  For those institutions with higher levels of risk or that are experiencing or anticipating significant growth, the minimum leverage ratio will be proportionately increased.  Minimum leverage ratios for each institution are evaluated through the ongoing regulatory examination process.

The Company’s capital amounts and ratios are presented in the following table:

											To be well-capitalized
						For capital					under prompt corrective
	Actual					adequacy purposes					action provisions
(In thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of March 31, 2013
Leverage ratio	$	90,876		11.12	%	≥ $	32,702		4.00	%		N/A		N/A
Tier I risk-based capital ratio		90,876		14.54			25,003		4.00			N/A		N/A
Total risk-based capital ratio		98,772		15.80			50,007		8.00			N/A		N/A
As of December 31, 2012
Leverage ratio	$	89,841		11.14	%	≥ $	32,251		4.00	%		N/A		N/A
Tier I risk-based capital ratio		89,841		14.85			24,193		4.00			N/A		N/A
Total risk-based capital ratio		97,492		16.12			48,387		8.00			N/A		N/A

The Bank’s capital amounts and ratios are presented in the following table:

											To be well-capitalized
						For capital					under prompt corrective
	Actual					adequacy purposes					action provisions
(In thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of March 31, 2013
Leverage ratio	$	70,676		8.65	%	≥ $	32,677		4.00	%	≥ $	40,846		5.00	%
Tier I risk-based capital ratio		70,676		11.32			24,975		4.00			37,463		6.00
Total risk-based capital ratio		87,062		13.94			49,950		8.00			62,438		10.00
As of December 31, 2012
Leverage ratio	$	69,544		8.63	%	≥ $	32,225		4.00	%	≥ $	40,282		5.00	%
Tier I risk-based capital ratio		69,544		11.51			24,170		4.00			36,254		6.00
Total risk-based capital ratio		85,687		14.18			48,339		8.00			60,424		10.00

44

Shareholders’ Equity

Shareholders’ equity increased $647 thousand to $78.2 million at March 31, 2013 compared to $77.5 million at December 31, 2012, due to net income of $1.2 million and  $83 thousand from the issuance of common stock under employee benefit plans, partially offset by $380 thousand of depreciation in the net unrealized losses on available for sale securities and  $256 thousand in dividends accrued on preferred stock.  The issuance of common stock under employee benefit plans includes nonqualified stock options and restricted stock expense related entries, employee option exercises and the tax benefit of options exercised.

Preferred Stock

On October 3, 2008, Congress passed the Emergency Economic Stabilization Act of 2008 (“EESA”), which provided the U.S. Secretary of the Treasury with broad authority to implement certain actions to help restore stability and liquidity to the U.S. markets.  One of the programs resulting from the EESA was the Treasury’s Capital Purchase Program (“CPP”) which provided direct equity investment of perpetual preferred stock by the U.S. Treasury in qualified financial institutions.  This program was voluntary and requires an institution to comply with several restrictions and provisions, including limits on executive compensation, stock redemptions, and declaration of dividends.  The perpetual preferred stock has a dividend rate of 5 percent per year until the fifth anniversary of the Treasury investment and a dividend of 9 percent thereafter.  The Company received an investment in perpetual preferred stock of $20.6 million on December 5, 2008.  These proceeds were allocated between the preferred stock and warrants based on relative fair value in accordance with the FASB ASC Topic 470, “Debt.”  The allocation of proceeds resulted in a discount on the preferred stock that is being accreted over five years.  The Company issued 764,778 common stock warrants to the U.S. Treasury and $2.6 million of the proceeds were allocated to the warrants.  The warrants are accounted for as equity securities and have a contractual life of ten years and an exercise price of $4.05.

As part of the CPP, the Company’s future ability to pay cash dividends is limited for so long as the Treasury holds the preferred stock.  As so limited the Company may not increase its quarterly cash dividend above $0.05 per share, the quarterly rate in effect at the time the CPP program was announced, without the prior approval of the Treasury.  The Company did not declare or pay any dividends during the three months ended March 31, 2013 or 2012.  The Company is currently preserving capital and may resume paying dividends when earnings and credit quality improve. 

Repurchase Plan

The Company has suspended its share repurchase program, as required by the CPP.  On October 21, 2002, the Company authorized the repurchase of up to 10 percent of its outstanding common stock.  The amount and timing of purchases is dependent upon a number of factors, including the price and availability of the Company’s shares, general market conditions and competing alternate uses of funds.  As of March 31, 2013, the Company had repurchased a total of 556 thousand shares, of which 131 thousand shares have been retired, leaving 153 thousand shares remaining to be repurchased under the plan when and if it is reinstated.  There were no shares repurchased during the threemonth periods ended March 31, 2013 or 2012.

Impact of Inflation and Changing Prices

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

ITEM 3Quantitative and Qualitative Disclosures about Market Risk

During the three months ended March 31, 2013, there have been no significant changes in the Company's assessment of market risk as reported in Item 6 of the Company's Annual Report on Form 10-K for the year ended December 31, 2012.  (See Interest Rate Sensitivity in Management's Discussion and Analysis Herein.)

ITEM 4Controls and Procedures

a) The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures as of March 31, 2013.  Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective for recording, processing, summarizing and reporting the information the Company is required to disclose in the reports it files under the Securities Exchange Act of 1934, within the time periods specified in the SEC's rules and forms.

b) No significant change in the Company’s internal control over financial reporting has occurred during the quarterly period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s controls over financial reporting.

45

PART IIOTHER INFORMATION

ITEM 1Legal Proceedings

From time to time, the Company is subject to other legal proceedings and claims in the ordinary course of business.  The Company currently is not aware of any such legal proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on the business, financial condition, or the results of the operation of the Company.

ITEM 1ARisk Factors

Information regarding this item as of March 31, 2013 appears under the heading, “Risk Factors” within the Company’s Form 10-K for the year ended December 31, 2012.

ITEM 2Unregistered Sales of Equity Securities and Use of Proceeds - None

ITEM 3Defaults upon Senior Securities - None

ITEM 4Mine Safety Disclosures - N/A

ITEM 5Other Information - None

ITEM 6Exhibits

(a) Exhibits	Description
Exhibit 31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

46

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.

	UNITY BANCORP, INC.
Dated:   May 10, 2013	/s/ Alan J. Bedner, Jr.
	Alan J. Bedner, Jr.
	Executive Vice President and Chief Financial Officer

47

EXHIBIT INDEX

QUARTERLY REPORT ON FORM 10-Q

Exhibit No.	Description
31.1	Exhibit 31.1-Certification of James A. Hughes.  Required by Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Exhibit 31.2-Certification of Alan J. Bedner, Jr.  Required by Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Exhibit 32.1-Certification of James A. Hughes and Alan J. Bedner, Jr.  Required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
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 Definitions Linkbase Document

48

EX-31.1

Exhibit 31.1

I, James A. Hughes, certify that:

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

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

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

4. The registrant's other certifying officer(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.

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 10, 2013	/s/ James A. Hughes
		James A. Hughes
		President and Chief Executive Officer

49

EX-31.2

Exhibit 31.2

I, Alan J. Bedner, Jr., certify that:

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

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

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

4. The registrant's other certifying officer(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.

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 10, 2013	/s/ Alan J. Bedner, Jr.
		Alan J. Bedner, Jr.
		Executive Vice President and Chief Financial Officer

50

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C.

Section 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of Unity Bancorp, Inc. (the “Company”), certifies that, to the best of their knowledge:

1. The Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2013 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:	May 10, 2013	/s/ James A. Hughes
		James A. Hughes
		President and Chief Executive Officer
Dated:	May 10, 2013	/s/ Alan J. Bedner, Jr.
		Alan J. Bedner, Jr.
		Executive Vice President and Chief Financial Officer

This certification is made solely for the purposes of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose.

51

XML

Fair Value (Fair Value On A Recurring Basis) (Narrative) (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2013
Fair Value [Abstract]
Percentage Of Portfolio In Residential Mortgage Backed Securities	45.00%
Residential Mortgage Backed Securities Guaranteed By Government National Mortgage Association Or Federal National Mortgage Association Or Federal Home Loan Mortgage Corporation	$ 39.5

XML

Loans (Impaired Loans With Associated Allowance Amount) (Tables) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	$ 13,006	$ 14,416
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	12,112	10,792
Impaired Financing Receivable, Unpaid Principal Balance	25,118	25,208
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	12,282	13,206
Impaired Financing Receivable, with Related Allowance, Recorded Investment	10,969	10,160
Impaired Financing Receivable, Recorded Investment	23,251	23,366
Impaired Financing Receivable, Related Allowance	1,679	2,001
SBA held to maturity [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	1,009	1,352
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	3,635	3,355
Impaired Financing Receivable, Unpaid Principal Balance	4,644	4,707
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	709	866
Impaired Financing Receivable, with Related Allowance, Recorded Investment	2,789	2,846
Impaired Financing Receivable, Recorded Investment	3,498	3,712
Impaired Financing Receivable, Related Allowance	1,050	1,159
SBA 504 loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	4,654	5,812
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	1,297	1,297
Impaired Financing Receivable, Unpaid Principal Balance	5,951	7,109
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	4,404	5,555
Impaired Financing Receivable, with Related Allowance, Recorded Investment	1,097	1,297
Impaired Financing Receivable, Recorded Investment	5,501	6,852
Impaired Financing Receivable, Related Allowance	206	217
Commercial other [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	2,026	2,032
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	26	126
Impaired Financing Receivable, Unpaid Principal Balance	2,052	2,158
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	2,027	2,033
Impaired Financing Receivable, with Related Allowance, Recorded Investment	13	38
Impaired Financing Receivable, Recorded Investment	2,040	2,071
Impaired Financing Receivable, Related Allowance	13	38
Commercial real estate [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	5,317	5,220
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	6,952	6,014
Impaired Financing Receivable, Unpaid Principal Balance	12,269	11,234
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	5,142	4,752
Impaired Financing Receivable, with Related Allowance, Recorded Investment	6,868	5,979
Impaired Financing Receivable, Recorded Investment	12,010	10,731
Impaired Financing Receivable, Related Allowance	328	587
Commercial real estate construction [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	202
Impaired Financing Receivable, Unpaid Principal Balance	202
Impaired Financing Receivable, with Related Allowance, Recorded Investment	202
Impaired Financing Receivable, Recorded Investment	202
Impaired Financing Receivable, Related Allowance	82
Total Commercial Loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	7,343	7,252
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	7,180	6,140
Impaired Financing Receivable, Unpaid Principal Balance	14,523	13,392
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	7,169	6,785
Impaired Financing Receivable, with Related Allowance, Recorded Investment	7,083	6,017
Impaired Financing Receivable, Recorded Investment	14,252	12,802
Impaired Financing Receivable, Related Allowance	$ 423	$ 625

XML

Securities (Schedule of Unrealized Loss on Investments) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013 security	Dec. 31, 2012 security
Schedule of Investments [Line Items]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	26	15
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	$ 14,285	$ 8,109
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	(220)	(71)
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	5,075	4,945
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	(443)	(626)
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value, Total	19,360	13,054
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses, Total	(663)	(697)
Held-to-maturity, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	8	3
Held-to-maturity Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	11,309	838
Held-to-maturity Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	(149)	(2)
Held-to-maturity Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	214	279
Held-to-maturity Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	(3)	(11)
Held-to-maturity Securities, Continuous Unrealized Loss Position, Fair Value, Total	11,523	1,117
Held-to-maturity Securities, Continuous Unrealized Loss Position, Aggregate Losses, Total	(152)	(13)
US Government Agencies Debt Securities [Member]
Schedule of Investments [Line Items]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	2
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	2,005
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	(4)
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value, Total	2,005
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses, Total	(4)
Held-to-maturity, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	2
Held-to-maturity Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	4,019
Held-to-maturity Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	(31)
Held-to-maturity Securities, Continuous Unrealized Loss Position, Fair Value, Total	4,019
Held-to-maturity Securities, Continuous Unrealized Loss Position, Aggregate Losses, Total	(31)
US States and Political Subdivisions Debt Securities [Member]
Schedule of Investments [Line Items]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	10
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	6,196
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	(150)
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value, Total	6,196
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses, Total	(150)
Residential Mortgage Backed Securities [Member]
Schedule of Investments [Line Items]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	3	5
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	1,945	3,272
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	(25)	(43)
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	1,773	1,951
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	(63)	(80)
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value, Total	3,718	5,223
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses, Total	(88)	(123)
Held-to-maturity, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	3	3
Held-to-maturity Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	2,246	838
Held-to-maturity Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	(8)	(2)
Held-to-maturity Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	214	279
Held-to-maturity Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	(3)	(11)
Held-to-maturity Securities, Continuous Unrealized Loss Position, Fair Value, Total	2,460	1,117
Held-to-maturity Securities, Continuous Unrealized Loss Position, Aggregate Losses, Total	(11)	(13)
Commercial Mortgage Backed Securities [Member]
Schedule of Investments [Line Items]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	4	4
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	684	2,351
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	(3)	(2)
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	158
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value, Total	842	2,351
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses, Total	(3)	(2)
Held-to-maturity, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	2
Held-to-maturity Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	4,070
Held-to-maturity Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	(106)
Held-to-maturity Securities, Continuous Unrealized Loss Position, Fair Value, Total	4,070
Held-to-maturity Securities, Continuous Unrealized Loss Position, Aggregate Losses, Total	(106)
Corporate Debt Securities [Member]
Schedule of Investments [Line Items]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	7	6
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	3,455	2,486
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	(38)	(26)
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	3,144	2,994
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	(380)	(546)
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value, Total	6,599	5,480
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses, Total	(418)	(572)
Held-to-maturity, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	1
Held-to-maturity Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	974
Held-to-maturity Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	(4)
Held-to-maturity Securities, Continuous Unrealized Loss Position, Fair Value, Total	974
Held-to-maturity Securities, Continuous Unrealized Loss Position, Aggregate Losses, Total	$ (4)

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Loans (Average Recorded Investments In Impaired Loans And Related Amount Of Interest Recognized) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, Average Recorded Investment	$ 29,477	$ 40,000
Impaired Financing Receivable, Interest Income, Accrual Method	297	277
SBA held to maturity [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, Average Recorded Investment	3,542	5,754
Impaired Financing Receivable, Interest Income, Accrual Method	57	56
SBA 504 loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, Average Recorded Investment	7,485	6,463
Impaired Financing Receivable, Interest Income, Accrual Method	88	70
Commercial other [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, Average Recorded Investment	2,042	2,769
Impaired Financing Receivable, Interest Income, Accrual Method	61	21
Commercial real estate [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, Average Recorded Investment	11,026	18,360
Impaired Financing Receivable, Interest Income, Accrual Method	83	130
Commercial real estate construction [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, Average Recorded Investment	135	533
Residential mortgages [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, Average Recorded Investment	2,757	1,650
Residential Construction Segment [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, Average Recorded Investment		2,169
Residential Purchased Mortgages Segment [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, Average Recorded Investment	2,149	2,006
Home equity [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, Average Recorded Investment	338	285
Impaired Financing Receivable, Interest Income, Accrual Method	8
Consumer other [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, Average Recorded Investment	$ 3	$ 11

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Securities (Unrealized Gain (Loss) on Investments) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Schedule of Investments [Line Items]
Available-for-sale securities, Amortized Cost	$ 89,485	$ 87,320
Available-for-sale Securities, Gross Unrealized Gains	2,245	2,915
Available-for-sale Securities, Gross Unrealized Losses	(663)	(697)
Available-for-sale securities, Estimated Fair Value	91,067	89,538
Securities held to maturity, Amortized cost	28,267	21,515
Securities held-to-maturity, Unrecognized Holding Gain	744	1,239
Securities held-to-maturity, Unrecognized Holding Loss	(152)	(13)
Securities held-to-maturity, Estimated Fair Value	28,859	22,741
US Government Agencies Debt Securities [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, Amortized Cost	6,927	2,482
Available-for-sale Securities, Gross Unrealized Gains	72	86
Available-for-sale Securities, Gross Unrealized Losses	(4)
Available-for-sale securities, Estimated Fair Value	6,995	2,568
Securities held to maturity, Amortized cost	6,049	5,050
Securities held-to-maturity, Unrecognized Holding Gain	1	38
Securities held-to-maturity, Unrecognized Holding Loss	(31)
Securities held-to-maturity, Estimated Fair Value	6,019	5,088
US States and Political Subdivisions Debt Securities [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, Amortized Cost	20,557	14,690
Available-for-sale Securities, Gross Unrealized Gains	499	613
Available-for-sale Securities, Gross Unrealized Losses	(150)
Available-for-sale securities, Estimated Fair Value	20,906	15,303
Securities held to maturity, Amortized cost	2,744	2,746
Securities held-to-maturity, Unrecognized Holding Gain	291	288
Securities held-to-maturity, Estimated Fair Value	3,035	3,034
Residential Mortgage Backed Securities [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, Amortized Cost	39,669	43,984
Available-for-sale Securities, Gross Unrealized Gains	1,417	1,684
Available-for-sale Securities, Gross Unrealized Losses	(88)	(123)
Available-for-sale securities, Estimated Fair Value	40,998	45,545
Securities held to maturity, Amortized cost	11,653	11,048
Securities held-to-maturity, Unrecognized Holding Gain	345	374
Securities held-to-maturity, Unrecognized Holding Loss	(11)	(13)
Securities held-to-maturity, Estimated Fair Value	11,987	11,409
Commercial Mortgage Backed Securities [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, Amortized Cost	3,674	4,423
Available-for-sale Securities, Gross Unrealized Gains	10	42
Available-for-sale Securities, Gross Unrealized Losses	(3)	(2)
Available-for-sale securities, Estimated Fair Value	3,681	4,463
Securities held to maturity, Amortized cost	6,842	2,671
Securities held-to-maturity, Unrecognized Holding Gain	107	539
Securities held-to-maturity, Unrecognized Holding Loss	(106)
Securities held-to-maturity, Estimated Fair Value	6,843	3,210
Corporate Debt Securities [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, Amortized Cost	18,658	21,741
Available-for-sale Securities, Gross Unrealized Gains	247	490
Available-for-sale Securities, Gross Unrealized Losses	(418)	(572)
Available-for-sale securities, Estimated Fair Value	18,487	21,659
Securities held to maturity, Amortized cost	979
Securities held-to-maturity, Unrecognized Holding Loss	(4)
Securities held-to-maturity, Estimated Fair Value	$ 975

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Significant Accounting Policies (Stock Transactions - Restricted Stock Awards) (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	3 years
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	1,720,529
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	81,676
Compensation expense	$ 35,020	$ 40,215
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Period for Recognition	2 years
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	4 years
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	221,551
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	4,663
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	14,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 6.02
Compensation expense	47,935	43,358
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Share-based Awards Other than Options	$ 552,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Period for Recognition	3 years

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Loans (Troubled Debt Restructurings Loans Modified) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013 loan	Mar. 31, 2012 loan
Financing Receivable, Impaired [Line Items]
Financing Receivable, Number of Contracts, Duration	1	6
Financing Receivable, Modifications, Pre-Modification Recorded Investment, Duration	$ 2,684	$ 3,147
Commercial other [Member]
Financing Receivable, Impaired [Line Items]
Financing Receivable, Number of Contracts, Duration		3
Financing Receivable, Modifications, Pre-Modification Recorded Investment, Duration		1,291
Commercial real estate [Member]
Financing Receivable, Impaired [Line Items]
Financing Receivable, Number of Contracts, Duration	1	3
Financing Receivable, Modifications, Pre-Modification Recorded Investment, Duration	$ 2,684	$ 1,856

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Allowance for Loan Losses and Reserve for Unfunded Loan Commitments (Tables)

3 Months Ended

Mar. 31, 2013

Allowance for Loan Losses and Reserve for Unfunded Loan Commitments [Abstract]

Schedule of Credit Losses for Financing Receivables, Current [Table Text Block]

	For the three ended March 31, 2013
(In thousands)	SBA held to maturity		SBA 504		Commercial		Residential		Consumer		Unallocated		Total
Balance, beginning of period	$	3,378	$	1,312	$	7,091	$	1,769	$	524	$	684	$	14,758
Charge-offs		(570)		(200)		(375)		(125)		(59)		-		(1,329)
Recoveries		137		25		101		2		1		-		266
Net charge-offs		(433)		(175)		(274)		(123)		(58)		-		(1,063)
Provision for loan losses charged to expense		463		159		62		231		90		(355)		650
Balance, end of period	$	3,408	$	1,296	$	6,879	$	1,877	$	556	$	329	$	14,345

	For the three ended March 31, 2012
(In thousands)	SBA held to maturity		SBA 504		Commercial		Residential		Consumer		Unallocated		Total
Balance, beginning of period	$	4,088	$	1,423	$	8,129	$	1,703	$	536	$	469	$	16,348
Charge-offs		(615)		(227)		(346)		(113)		-		-		(1,301)
Recoveries		53		28		11		-		-		-		92
Net charge-offs		(562)		(199)		(335)		(113)		-		-		(1,209)
Provision for loan losses charged to expense		113		61		567		180		(9)		288		1,200
Balance, end of period	$	3,639	$	1,285	$	8,361	$	1,770	$	527	$	757	$	16,339

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

	March 31, 2013
(In thousands)	SBA held to maturity		SBA 504		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses ending balance:
Individually evaluated for impairment	$	1,050	$	206	$	423	$	-	$	-	$	-	$	1,679
Collectively evaluated for impairment		2,358		1,090		6,456		1,877		556		329		12,666
Total	$	3,408	$	1,296	$	6,879	$	1,877	$	556	$	329	$	14,345
Loan ending balances:
Individually evaluated for impairment	$	3,498	$	5,501	$	14,252	$	-	$	-	$	-	$	23,251
Collectively evaluated for impairment		53,370		34,283		296,397		136,345		46,369		-		566,764
Total	$	56,868	$	39,784	$	310,649	$	136,345	$	46,369	$	-	$	590,015

	December 31, 2012
(In thousands)	SBA held to maturity		SBA 504		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses ending balance:
Individually evaluated for impairment	$	1,159	$	217	$	625	$	-	$	-	$	-	$	2,001
Collectively evaluated for impairment		2,219		1,095		6,466		1,769		524		684		12,757
Total	$	3,378	$	1,312	$	7,091	$	1,769	$	524	$	684	$	14,758
Loan ending balances:
Individually evaluated for impairment	$	3,712	$	6,852	$	12,802	$	-	$	-	$	-	$	23,366
Collectively evaluated for impairment		54,881		34,586		288,762		132,094		46,410		-		556,733
Total	$	58,593	$	41,438	$	301,564	$	132,094	$	46,410	$	-	$	580,099

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Securities (Unrealized Losses Narrative) (Details) (USD $)			3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2013 US States and Political Subdivisions Debt Securities [Member]	Mar. 31, 2012 US States and Political Subdivisions Debt Securities [Member]	Mar. 31, 2012 Residential Mortgage Backed Securities [Member]	Mar. 31, 2013 Corporate Debt Securities [Member]	Mar. 31, 2013 Equity Securities [Member]
Schedule of Investments [Line Items]
Gross Realized Gains on Marketable Securities					$ 228,000	$ 227,000	$ 3,000
Gross Realized Losses on Marketable Securities			4,000	4,000
Available-for-sale Securities, Gross Realized Gains (Losses), Sale Proceeds			60,000	60,000	2,600,000	5,400,000	60,000
Available-for-sale Securities Pledged as Collateral	79,200,000	78,400,000
Available For Sale Securities Pledged As Collateral Against Government Deposits	$ 26,800,000	$ 25,100,000

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Fair Value (Fair Value On A Nonrecurring Basis) (Narrative) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Financing Receivable, Related Allowance	$ 1,679	$ 2,001
Impaired Financing Receivable, Recorded Investment	$ 23,251	$ 23,366
Minimum [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financing Receivable Modifications Post Modification Recorded Investment Discount For Selling And Closing Costs	8.00%

XML

Other Comprehensive Income (Table) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Other Comprehensive Income [Abstract]
Net unrealized gains on securities: Balance, Beginning of Period	$ 1,333	$ 1,121
Unrealized holding gains arising during period, pre-tax	(409)	(281)
Unrealized holding gains arising during period, tax	(179)	(127)
Unrealized holding gains arising during period, after-tax	(230)	(154)
Less: Reclassification adjustment for gains included in net income, pre-tax	226	224
Less: Reclassification adjustment for gains included in net income, tax	76	75
Less: Reclassification adjustment for gains on securities included in net income	150	149
Net unrealized gains on securities arising during period, pre-tax	(635)	(505)
Net unrealized gains on securities arising during period, tax	(255)	(202)
Net unrealized gains on securities arising during the period, after-tax	(380)	(303)
Net unrealized gains on securities: Balance, End of Period	$ 953	$ 818

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Loans (Loan Portfolio By Class According To Credit Quality Indicatiors) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Financing Receivable, Recorded Investment [Line Items]
SBA loans held to maturity	$ 56,868	$ 58,593
SBA 504 loans	39,784	41,438
Commercial loans	310,649	301,564
SBA, SBA 504, and commercial loans	407,301	401,595
Residential mortgage loans	136,345	132,094
Consumer loans	46,369	46,410
Total Loans	596,571	587,036
Commercial other [Member]
Financing Receivable, Recorded Investment [Line Items]
Commercial loans	27,787	24,043
Total Loans	27,787	24,043
Commercial real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Commercial loans	270,097	264,439
Total Loans	270,097	264,439
Commercial real estate construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Commercial loans	12,765	13,082
Total Loans	12,765	13,082
Residential mortgages [Member]
Financing Receivable, Recorded Investment [Line Items]
Residential mortgage loans	129,570	125,232
Total Loans	129,570	125,232
Residential Purchased Mortgages Segment [Member]
Financing Receivable, Recorded Investment [Line Items]
Residential mortgage loans	6,775	6,862
Total Loans	6,775	6,862
Home equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Consumer loans	44,064	45,152
Total Loans	44,064	45,152
Consumer other [Member]
Financing Receivable, Recorded Investment [Line Items]
Consumer loans	2,305	1,258
Total Loans	2,305	1,258
Residential Mortgage And Consumer Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	182,714	178,504
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
SBA loans held to maturity	45,017	45,680
SBA 504 loans	28,401	28,726
Commercial loans	273,766	262,583
SBA, SBA 504, and commercial loans	347,184	336,989
Pass [Member] | Commercial other [Member]
Financing Receivable, Recorded Investment [Line Items]
Commercial loans	23,923	20,187
Pass [Member] | Commercial real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Commercial loans	237,280	229,516
Pass [Member] | Commercial real estate construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Commercial loans	12,563	12,880
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
SBA loans held to maturity	3,833	4,376
SBA 504 loans	4,028	5,860
Commercial loans	30,200	32,604
SBA, SBA 504, and commercial loans	38,061	42,840
Special Mention [Member] | Commercial other [Member]
Financing Receivable, Recorded Investment [Line Items]
Commercial loans	1,713	1,669
Special Mention [Member] | Commercial real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Commercial loans	28,487	30,733
Special Mention [Member] | Commercial real estate construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Commercial loans		202
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
SBA loans held to maturity	8,018	8,537
SBA 504 loans	7,355	6,852
Commercial loans	6,683	6,377
SBA, SBA 504, and commercial loans	22,056	21,766
Substandard [Member] | Commercial other [Member]
Financing Receivable, Recorded Investment [Line Items]
Commercial loans	2,151	2,187
Substandard [Member] | Commercial real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Commercial loans	4,330	4,190
Substandard [Member] | Commercial real estate construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Commercial loans	202
Performing Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Residential mortgage loans	131,791	126,583
Consumer loans	46,067	46,093
Performing Financing Receivable [Member] | Residential mortgages [Member]
Financing Receivable, Recorded Investment [Line Items]
Residential mortgage loans	126,745	122,711
Performing Financing Receivable [Member] | Residential Purchased Mortgages Segment [Member]
Financing Receivable, Recorded Investment [Line Items]
Residential mortgage loans	5,046	3,872
Performing Financing Receivable [Member] | Home equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Consumer loans	43,762	44,844
Performing Financing Receivable [Member] | Consumer other [Member]
Financing Receivable, Recorded Investment [Line Items]
Consumer loans	2,305	1,249
Performing Financing Receivable [Member] | Residential Mortgage And Consumer Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	177,858	172,676
Nonperforming Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Residential mortgage loans	4,554	5,511
Consumer loans	302	317
Nonperforming Financing Receivable [Member] | Residential mortgages [Member]
Financing Receivable, Recorded Investment [Line Items]
Residential mortgage loans	2,825	2,521
Nonperforming Financing Receivable [Member] | Residential Purchased Mortgages Segment [Member]
Financing Receivable, Recorded Investment [Line Items]
Residential mortgage loans	1,729	2,990
Nonperforming Financing Receivable [Member] | Home equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Consumer loans	302	308
Nonperforming Financing Receivable [Member] | Consumer other [Member]
Financing Receivable, Recorded Investment [Line Items]
Consumer loans		9
Nonperforming Financing Receivable [Member] | Residential Mortgage And Consumer Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	$ 4,856	$ 5,828

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Securities (Investments Classified by Contractual Maturity Date) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Schedule of Investments [Line Items]
Available-for-sale Securities, Debt Maturities, Next Twelve Months, Fair Value	$ 1,550
Available For Sale Securities Debt Maturities Next Twelve Months Fair Value Yield	0.77%
Available-for-sale Securities, Debt Maturities, Year Two Through Five, Fair Value	3,558
Available For Sale Securities Debt Maturities Year Two Through Five Years Fair Value Yield	1.93%
Available-for-sale Securities, Debt Maturities, Year Six Through Ten, Fair Value	21,755
Available For Sale Securities Debt Maturities Year Six Through Ten Years Fair Value Yield	3.00%
Available-for-sale Securities, Debt Maturities, after Ten Years, Fair Value	64,204
Available For Sale Securities Debt Maturities After Ten Years Fair Value Yield	2.64%
Available-for-sale Securities	91,067	89,538
Available For Sale Securities Total Fair Value Yield	2.67%
Held-to-maturity Securities, Debt Maturities, within One Year, Net Carrying Amount	672
Held-to-maturity Securities, Debt Maturities, within One Year, Net Carrying Amount Yield	0.96%
Held-to-maturity Securities, Debt Maturities, after One Through Five Years, Net Carrying Amount	871
Held To Maturity Securities Debt Maturities After One Through Five Years Net Carrying Amount Yield	4.75%
Held-to-maturity Securities, Debt Maturities, after Five Through Ten Years, Net Carrying Amount	1,589
Held To Maturity Securities Debt Maturities After Five Through Ten Years Net Carrying Amount Yield	3.74%
Held-to-maturity Securities, Debt Maturities, after Ten Years, Net Carrying Amount	25,135
Held To Maturity Securities Debt Maturities After Ten Years Net Carrying Amount Yield	2.69%
Securities held to maturity, Carrying amount	28,267	21,515
Held To Maturity Securities Total Carrying Amount Yield	2.77%
US Government Agencies Debt Securities [Member]
Schedule of Investments [Line Items]
Available-for-sale Securities, Debt Maturities, Year Two Through Five, Fair Value	1,108
Available For Sale Securities Debt Maturities Year Two Through Five Years Fair Value Yield	1.17%
Available-for-sale Securities, Debt Maturities, Year Six Through Ten, Fair Value	1,017
Available For Sale Securities Debt Maturities Year Six Through Ten Years Fair Value Yield	2.13%
Available-for-sale Securities, Debt Maturities, after Ten Years, Fair Value	4,870
Available For Sale Securities Debt Maturities After Ten Years Fair Value Yield	2.09%
Available-for-sale Securities	6,995	2,568
Available For Sale Securities Total Fair Value Yield	1.95%
Held-to-maturity Securities, Debt Maturities, after Ten Years, Net Carrying Amount	6,049
Held To Maturity Securities Debt Maturities After Ten Years Net Carrying Amount Yield	1.80%
Securities held to maturity, Carrying amount	6,049	5,050
Held To Maturity Securities Total Carrying Amount Yield	1.80%
US States and Political Subdivisions Debt Securities [Member]
Schedule of Investments [Line Items]
Available-for-sale Securities, Debt Maturities, Next Twelve Months, Fair Value	1,504
Available For Sale Securities Debt Maturities Next Twelve Months Fair Value Yield	0.70%
Available-for-sale Securities, Debt Maturities, Year Two Through Five, Fair Value	841
Available For Sale Securities Debt Maturities Year Two Through Five Years Fair Value Yield	2.55%
Available-for-sale Securities, Debt Maturities, Year Six Through Ten, Fair Value	13,151
Available For Sale Securities Debt Maturities Year Six Through Ten Years Fair Value Yield	2.92%
Available-for-sale Securities, Debt Maturities, after Ten Years, Fair Value	5,410
Available For Sale Securities Debt Maturities After Ten Years Fair Value Yield	2.83%
Available-for-sale Securities	20,906	15,303
Available For Sale Securities Total Fair Value Yield	2.72%
Held-to-maturity Securities, Debt Maturities, within One Year, Net Carrying Amount	624
Held-to-maturity Securities, Debt Maturities, within One Year, Net Carrying Amount Yield	0.75%
Held-to-maturity Securities, Debt Maturities, after Ten Years, Net Carrying Amount	2,120
Held To Maturity Securities Debt Maturities After Ten Years Net Carrying Amount Yield	4.70%
Securities held to maturity, Carrying amount	2,744	2,746
Held To Maturity Securities Total Carrying Amount Yield	3.80%
Residential Mortgage Backed Securities [Member]
Schedule of Investments [Line Items]
Available-for-sale Securities, Debt Maturities, Next Twelve Months, Fair Value	46
Available For Sale Securities Debt Maturities Next Twelve Months Fair Value Yield	3.11%
Available-for-sale Securities, Debt Maturities, Year Two Through Five, Fair Value	208
Available For Sale Securities Debt Maturities Year Two Through Five Years Fair Value Yield	4.41%
Available-for-sale Securities, Debt Maturities, Year Six Through Ten, Fair Value	680
Available For Sale Securities Debt Maturities Year Six Through Ten Years Fair Value Yield	4.44%
Available-for-sale Securities, Debt Maturities, after Ten Years, Fair Value	40,064
Available For Sale Securities Debt Maturities After Ten Years Fair Value Yield	2.72%
Available-for-sale Securities	40,998	45,545
Available For Sale Securities Total Fair Value Yield	2.76%
Held-to-maturity Securities, Debt Maturities, within One Year, Net Carrying Amount	48
Held-to-maturity Securities, Debt Maturities, within One Year, Net Carrying Amount Yield	3.67%
Held-to-maturity Securities, Debt Maturities, after One Through Five Years, Net Carrying Amount	871
Held To Maturity Securities Debt Maturities After One Through Five Years Net Carrying Amount Yield	4.75%
Held-to-maturity Securities, Debt Maturities, after Five Through Ten Years, Net Carrying Amount	610
Held To Maturity Securities Debt Maturities After Five Through Ten Years Net Carrying Amount Yield	5.00%
Held-to-maturity Securities, Debt Maturities, after Ten Years, Net Carrying Amount	10,124
Held To Maturity Securities Debt Maturities After Ten Years Net Carrying Amount Yield	2.05%
Securities held to maturity, Carrying amount	11,653	11,048
Held To Maturity Securities Total Carrying Amount Yield	2.42%
Commercial Mortgage Backed Securities [Member]
Schedule of Investments [Line Items]
Available-for-sale Securities, Debt Maturities, after Ten Years, Fair Value	3,681
Available For Sale Securities Debt Maturities After Ten Years Fair Value Yield	3.11%
Available-for-sale Securities	3,681	4,463
Available For Sale Securities Total Fair Value Yield	3.11%
Held-to-maturity Securities, Debt Maturities, after Ten Years, Net Carrying Amount	6,842
Held To Maturity Securities Debt Maturities After Ten Years Net Carrying Amount Yield	3.80%
Securities held to maturity, Carrying amount	6,842	2,671
Held To Maturity Securities Total Carrying Amount Yield	3.80%
Corporate Debt Securities [Member]
Schedule of Investments [Line Items]
Available-for-sale Securities, Debt Maturities, Year Two Through Five, Fair Value	1,401
Available For Sale Securities Debt Maturities Year Two Through Five Years Fair Value Yield	1.80%
Available-for-sale Securities, Debt Maturities, Year Six Through Ten, Fair Value	6,907
Available For Sale Securities Debt Maturities Year Six Through Ten Years Fair Value Yield	3.14%
Available-for-sale Securities, Debt Maturities, after Ten Years, Fair Value	10,179
Available For Sale Securities Debt Maturities After Ten Years Fair Value Yield	2.33%
Available-for-sale Securities	18,487	21,659
Available For Sale Securities Total Fair Value Yield	2.59%
Held-to-maturity Securities, Debt Maturities, after Five Through Ten Years, Net Carrying Amount	979
Held To Maturity Securities Debt Maturities After Five Through Ten Years Net Carrying Amount Yield	2.95%
Securities held to maturity, Carrying amount	$ 979
Held To Maturity Securities Total Carrying Amount Yield	2.95%

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Litigation

3 Months Ended

Mar. 31, 2013

Litigation [Abstract]

Litigation

NOTE 2.  Litigation

The Company may, in the ordinary course of business, become a party to litigation involving collection matters, contract claims and other legal proceedings relating to the conduct of its business.  In the best judgment of management, based upon consultation with counsel, the consolidated financial position and results of operations of the Company will not be affected materially by the final outcome of any pending legal proceedings or other contingent liabilities and commitments.

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Fair Value (Fair Value On A Nonrecurring Basis) (Tables) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Mar. 31, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
OREO	$ 300	$ 256
Impaired collateral-depended	9,290	11,851
Change During Period, Fair Value Disclosure [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
OREO	(70)	(116)
Impaired collateral-depended	322	568
Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
OREO	300	256
Impaired collateral-depended	$ 9,290	$ 11,851

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Significant Accounting Policies (Stock Transactions - Options Exercised Tables) (Details) (USD $)	3 Months Ended
	Mar. 31, 2012
Significant Accounting Policies [Abstract]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period	3,841
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Total Intrinsic Value	$ 6,055
Employee Service Share-based Compensation, Cash Received from Exercise of Stock Options	21,410
Tax deduction realized from options exercised	$ 513

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Significant Accounting Policies (Fair Value Assumptions) (Details) (USD $)	3 Months Ended
	Mar. 31, 2013		Mar. 31, 2012
Significant Accounting Policies [Abstract]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	25,000
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price	$ 6.02
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 2.91
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term	5 years 1 month 10 days	[1]	0 years	[1]
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate	52.81%	[2]
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate	0.77%	[3]

[1] The expected life of the options was estimated based on historical employee behavior and represents the period of time that options granted are expected to be outstanding.

[2] The expected volatility of the Company’s stock price was based on the historical volatility over the period commensurate with the expected life of the options.

[3] The risk-free interest rate is the U.S. Treasury rate commensurate with the expected life of the options on the date of grant.

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Loans (Troubled Debt Restructurings Narrative) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended			3 Months Ended	12 Months Ended		3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012	Mar. 31, 2013 Troubled Debt Restructuring (TDR) [Member]	Dec. 31, 2012 Troubled Debt Restructuring (TDR) [Member]	Mar. 31, 2012 Troubled Debt Restructuring (TDR) [Member]	Mar. 31, 2013 Nonaccrual Status [Member] Troubled Debt Restructuring (TDR) [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, Average Recorded Investment	$ 29,477	$ 40,000		$ 16,200	$ 14,700		$ 1,100
Impaired Financing Receivable, Related Allowance	$ 1,679		$ 2,001	$ 490		$ 659

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Fair Value (Fair Value Of Financial Instruments) (Narrative) (Details) (Standby Letters of Credit [Member], USD $) In Millions, unless otherwise specified	Mar. 31, 2013
Standby Letters of Credit [Member]
Schedule of Investments [Line Items]
Supply Commitment, Remaining Minimum Amount Committed	$ 1.6

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Significant Accounting Policies (Stock Transactions - Stock Options Outstanding) (Details) (USD $)	3 Months Ended	12 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	541,332	516,332
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term	5 years 4 months 24 days	5 years 4 months 24 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price	$ 7.01	$ 7.06
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number	415,837
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price	$ 7.21
Range Of Option Exercise Prices 0.00-4.00 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	119,750
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term	6 years 1 month 6 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price	$ 3.87
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number	119,750
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price	$ 3.87
Range Of Option Exercise Prices 4.01-8.00 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	256,675
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term	7 years 4 months 24 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price	$ 6.47
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number	131,180
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price	$ 6.59
Range Of Option Exercise Prices 8.01-12.00 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	120,256
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term	1 year
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price	$ 9.22
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number	120,256
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price	$ 9.22
Range Of Option Exercise Prices 12.01-16.00 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	44,651
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term	3 years 9 months 18 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price	$ 12.62
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number	44,651
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price	$ 12.62

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Significant Accounting Policies (Compensation expense related to stock options) (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Significant Accounting Policies [Abstract]
Compensation expense	$ 35,020	$ 40,215
Income tax benefit	$ 13,987	$ 14,319

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Significant Accounting Policies

3 Months Ended

Mar. 31, 2013

Significant Accounting Policies [Abstract]

Significant Accounting Policies

NOTE 1.  Significant Accounting Policies

The accompanying Consolidated Financial Statements include the accounts of Unity Bancorp, Inc. (the "Parent Company") and its wholly-owned subsidiary, Unity Bank (the "Bank" or when consolidated with the Parent Company, the "Company"), and reflect all adjustments and disclosures which are generally routine and recurring in nature, and in the opinion of management, necessary for a fair presentation of interim results.  Unity Investment Services, Inc., a wholly-owned subsidiary of the Bank, is used to hold part of the Bank’s investment portfolio.  All significant intercompany balances and transactions have been eliminated in consolidation.  Certain reclassifications have been made to prior period amounts to conform to the current year presentation, with no impact on current earnings.  The financial information has been prepared in accordance with U.S. generally accepted accounting principles and has not been audited.  In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses during the reporting periods.  Actual results could differ from those estimates.  Amounts requiring the use of significant estimates include the allowance for loan losses, valuation of deferred tax and servicing assets, the carrying value of loans held for sale and other real estate owned, the valuation of securities and the determination of other-than-temporary impairment for securities and fair value disclosures.  Management believes that the allowance for loan losses is adequate.  While management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions.  The Company has evaluated subsequent events for potential recognition and/or disclosure through the date the Consolidated Financial Statements included in this Quarterly Report on Form 10-Q were available to be issued.

The interim unaudited Consolidated Financial Statements included herein have been prepared in accordance with instructions for Form 10-Q and the rules and regulations of the Securities and Exchange Commission (“SEC”) and consist of normal recurring adjustments necessary for the fair presentation of interim results.  The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results which may be expected for the entire year.  As used in this Form 10-Q, “we” and “us” and “our” refer to Unity Bancorp, Inc., and its consolidated subsidiary, Unity Bank, depending on the context.  Certain information and financial disclosures required by generally accepted accounting principles have been condensed or omitted from interim reporting pursuant to SEC rules.  Interim financial statements should be read in conjunction with the Company’s Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

Stock Transactions

Stock Option Plans

The Company has incentive and nonqualified option plans, which allow for the grant of options to officers, employees and members of the Board of Directors.  Transactions under the Company’s stock option plans for the three months ended March 31, 2013 are summarized in the following table:

	Shares		Weighted average exercise price		Weighted average remaining contractual life (in years)		Aggregate intrinsic value
Outstanding at December 31, 2012		516,332	$	7.06		5.4	$	327,725
Options granted		25,000		6.02
Options exercised		-		-
Options forfeited		-		-
Options expired		-		-
Outstanding at March 31, 2013		541,332	$	7.01		5.4	$	391,318
Exercisable at March 31, 2013		415,837	$	7.21		4.3	$	363,559

Grants under the Company’s incentive and nonqualified option plans generally vest over 3 years and must be exercised within 10 years of the date of grant.  The exercise price of each option is the market price on the date of grant.  As of March 31, 2013, 1,720,529 shares have been reserved for issuance upon the exercise of options, 541,332 option grants are outstanding, and 1,097,521 option grants have been exercised, forfeited or expired, leaving 81,676 shares available for grant.

The fair values of the options granted during the three months ended March 31, 2013 and 2012 were estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	For the three months ended March 31,
	2013			2012
Number of options granted		25,000			N/A
Weighted average exercise price	$	6.02		$	N/A
Weighted average fair value of options	$	2.91		$	N/A
Expected life in years (1)		5.11			N/A
Expected volatility (2)		52.81	%		N/A	%
Risk-free interest rate (3)		0.77	%		N/A	%
Dividend yield (4)		-	%		N/A	%

(1) The expected life of the options was estimated based on historical employee behavior and represents the period of time that options granted are expected to be outstanding.

(2) The expected volatility of the Company’s stock price was based on the historical volatility over the period commensurate with the expected life of the options. 

(3) The risk-free interest rate is the U.S. Treasury rate commensurate with the expected life of the options on the date of grant.

(4) The expected dividend yield is the projected annual yield based on the grant date stock price.

Upon exercise, the Company issues shares from its authorized but unissued common stock to satisfy the options.  The following table presents information about options exercised during three months ended March 31, 2013 and 2012:

	For the three months ended March 31,
	2013		2012
Number of options exercised		N/A		3,841
Total intrinsic value of options exercised	$	N/A	$	6,055
Cash received from options exercised		N/A		21,410
Tax deduction realized from options exercised		N/A		513

The following table summarizes information about stock options outstanding and exercisable at March 31, 2013:

		Options outstanding						Options exercisable
Range of exercise prices		Options outstanding		Weighted average remaining contractual life (in years)		Weighted average exercise price		Options exercisable		Weighted average exercise price
$	0.00 - 4.00		119,750		6.1	$	3.87		119,750	$	3.87
	4.01 - 8.00		256,675		7.4		6.47		131,180		6.59
	8.01 - 12.00		120,256		1.0		9.22		120,256		9.22
	12.01 - 16.00		44,651		3.8		12.62		44,651		12.62
	Total		541,332		5.4	$	7.01		415,837	$	7.21

Financial Accounting Standards Board Accounting Standards Codification ("FASB ASC") Topic 718, “Compensation - Stock Compensation,” requires an entity to recognize the fair value of equity awards as compensation expense over the period during which an employee is required to provide service in exchange for such an award (vesting period).  Compensation expense related to stock options and the related income tax benefit for the three months ended March 31, 2013 and 2012 are detailed in the following table:

	For the three months ended March 31,
	2013		2012
Compensation expense	$	35,020	$	40,215
Income tax benefit		13,987		14,319

As of March 31, 2013, unrecognized compensation costs related to nonvested share-based compensation arrangements granted under the Company’s stock option plans totaled approximately $278 thousand.  That cost is expected to be recognized over a weighted average period of 2.0years.

Restricted Stock Awards

Restricted stock is issued under the stock bonus program to reward employees and directors and to retain them by distributing stock over a period of time.  The following table summarizes nonvested restricted stock activity for the three months ended March 31, 2013:

	Shares		Average grant date fair value
Nonvested restricted stock at December 31, 2012		90,975	$	6.10
Granted		14,000		6.02
Vested		-		-
Forfeited		-		-
Nonvested restricted stock at March 31, 2013		104,975	$	6.09

Restricted stock awards granted to date vest over a period of 4 years and are recognized as compensation to the recipient over the vesting period.  The awards are recorded at fair market value at the time of grant and amortized into salary expense on a straight line basis over the vesting period.  As of March 31, 2013, 221,551 shares of restricted stock were reserved for issuance, of which 4,663 shares are available for grant.

Restricted stock awards granted during the three months ended March 31, 2013 and 2012 were as follows:

	For the three months ended March 31,
	2013		2012
Number of shares granted		14,000		N/A
Average grant date fair value	$	6.02	$	N/A

Compensation expense related to restricted stock for the three months ended March 31, 2013 and 2012 is detailed in the following table:

	For the three months ended March 31,
	2013		2012
Compensation expense	$	47,935	$	43,358

As of March 31, 2013, there was approximately $552 thousand of unrecognized compensation cost related to nonvested restricted stock awards granted under the Company’s stock incentive plans.  That cost is expected to be recognized over a weighted average period of 3.0years.

Other-Than-Temporary Impairment

The Company has a process in place to identify debt securities that could potentially incur credit impairment that is other-than-temporary. This process involves monitoring late payments, pricing levels, downgrades by rating agencies, key financial ratios, financial statements, revenue forecasts and cash flow projections as indicators of credit issues. Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concern warrants such evaluation. This evaluation considers relevant facts and circumstances in evaluating whether a credit or interest rate-related impairment of a security is other-than-temporary. Relevant facts and circumstances considered include: (1) the extent and length of time the fair value has been below cost; (2) the reasons for the decline in value; (3) the financial position and access to capital of the issuer, including the current and future impact of any specific events and (4) for fixed maturity securities, our intent to sell a security or whether it is more likely than not we will be required to sell the security before the recovery of its amortized cost which, in some cases, may extend to maturity and for equity securities, our ability and intent to hold the security for a forecasted period of time that allows for the recovery in value.

Management assesses its intent to sell or whether it is more likely than not that it will be required to sell a security before recovery of its amortized cost basis less any current-period credit losses. For debt securities that are considered other-than-temporarily impaired with no intent to sell and no requirement to sell prior to recovery of its amortized cost basis, the amount of the impairment is separated into the amount that is credit related (credit loss component) and the amount due to all other factors. The credit loss component is recognized in earnings and is the difference between the security’s amortized cost basis and the present value of its expected future cash flows. The remaining difference between the security’s fair value and the present value of future expected cash flows is due to factors that are not credit related and is recognized in other comprehensive income. For debt securities where management has the intent to sell, the amount of the impairment is reflected in earnings as realized losses.

The present value of expected future cash flows is determined using the best estimate cash flows discounted at the effective interest rate implicit to the security at the date of purchase or the current yield to accrete an asset-backed or floating rate security. The methodology and assumptions for establishing the best estimate cash flows vary depending on the type of security. The asset-backed securities cash flow estimates are based on bond specific facts and circumstances that may include collateral characteristics, expectations of delinquency and default rates, loss severity and prepayment speeds and structural support, including subordination and guarantees. The corporate bond cash flow estimates are derived from scenario-based outcomes of expected corporate restructurings or the disposition of assets using bond specific facts and circumstances including timing, security interests and loss severity.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Loans

Loans Held for Sale

Loans held for sale represent the guaranteed portion of SBA loans and are reflected at the lower of aggregate cost or market value. The Company originates loans to customers under an SBA program that historically has provided for SBA guarantees of up to 90 percent of each loan. The Company generally sells the guaranteed portion of its SBA loans to a third party and retains the servicing, holding the nonguaranteed portion in its portfolio. The net amount of loan origination fees on loans sold is included in the carrying value and in the gain or loss on the sale. When sales of SBA loans do occur, the premium received on the sale and the present value of future cash flows of the servicing assets are recognized in income. All criteria for sale accounting must be met in order for the loan sales to occur; see details under the “Transfers of Financial Assets” heading above.

Servicing assets represent the estimated fair value of retained servicing rights, net of servicing costs, at the time loans are sold. Servicing assets are amortized in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on stratifying the underlying financial assets by date of origination and term. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Any impairment, if temporary, would be reported as a valuation allowance.

Serviced loans sold to others are not included in the accompanying Consolidated Balance Sheets. Income and fees collected for loan servicing are credited to noninterest income when earned, net of amortization on the related servicing assets.

Loans Held to Maturity

Loans held to maturity are stated at the unpaid principal balance, net of unearned discounts and deferred loan origination fees and costs. In accordance with the level yield method, loan origination fees, net of direct loan origination costs, are deferred and recognized over the estimated life of the related loans as an adjustment to the loan yield. Interest is credited to operations primarily based upon the principal balance outstanding.

Loans are reported as past due when either interest or principal is unpaid in the following circumstances: fixed payment loans when the borrower is in arrears for two or more monthly payments; open end credit for two or more billing cycles; and single payment notes if interest or principal remains unpaid for 30 days or more.

Nonperforming loans consist of loans that are not accruing interest as a result of principal or interest being in default for a period of 90 days or more or when the ability to collect principal and interest according to the contractual terms is in doubt (nonaccrual loans). When a loan is classified as nonaccrual, interest accruals are discontinued and all past due interest previously recognized as income is reversed and charged against current period earnings. Generally, until the loan becomes current, any payments received from the borrower are applied to outstanding principal until such time as management determines that the financial condition of the borrower and other factors merit recognition of a portion of such payments as interest income. Loans may be returned to an accrual status when the ability to collect is reasonably assured and when the loan is brought current as to principal and interest.

Loans are charged off when collection is sufficiently questionable and when the Company can no longer justify maintaining the loan as an asset on the balance sheet. Loans qualify for charge-off when, after thorough analysis, all possible sources of repayment are insufficient. These include: 1) potential future cash flows, 2) value of collateral, and/or 3) strength of co-makers and guarantors. All unsecured loans are charged off upon the establishment of the loan’s nonaccrual status. Additionally, all loans classified as a loss or that portion of the loan classified as a loss is charged off. All loan charge-offs are approved by the Board of Directors.

Troubled debt restructurings ("TDRs") occur when a creditor, for economic or legal reasons related to a debtor’s financial condition, grants a concession to the debtor that it would not otherwise consider. These concessions typically include reductions in interest rate, extending the maturity of a loan, or a combination of both. Interest income on accruing TDRs is credited to operations primarily based upon the principal amount outstanding, as stated in the paragraphs above.

The Company evaluates its loans for impairment. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Company has defined impaired loans to be all TDRs and nonperforming loans. Impairment is evaluated in total for smaller-balance loans of a similar nature (consumer and residential mortgage loans), and on an individual basis for all other loans. Impairment of a loan is measured based on the present value of expected future cash flows, discounted at the loan's effective interest rate, or as a practical expedient, based on a loan’s observable market price or the fair value of collateral, net of estimated costs to sell, if the loan is collateral-dependent. If the value of the impaired loan is less than the recorded investment in the loan, the Company establishes a valuation allowance, or adjusts existing valuation allowances, with a corresponding charge to the provision for loan losses.

For additional information on loans, see Note 8 to the Consolidated Financial Statements and the section titled "Loan Portfolio" under Item 2.  Management's Discussion and Analysis.

Allowance for Loan Losses and Reserve for Unfunded Loan Commitments

The allowance for loan losses is maintained at a level management considers adequate to provide for probable loan losses as of the balance sheet date. The allowance is increased by provisions charged to expense and is reduced by net charge-offs.

The level of the allowance is based on management’s evaluation of probable losses in the loan portfolio, after consideration of prevailing economic conditions in the Company’s market area, the volume and composition of the loan portfolio, and historical loan loss experience. The allowance for loan losses consists of specific reserves for individually impaired credits and TDRs, reserves for nonimpaired loans based on historical loss factors and reserves based on general economic factors and other qualitative risk factors such as changes in delinquency trends, industry concentrations or local/national economic trends. This risk assessment process is performed at least quarterly, and, as adjustments become necessary, they are realized in the periods in which they become known.

Although management attempts to maintain the allowance at a level deemed adequate to provide for probable losses, future additions to the allowance may be necessary based upon certain factors including changes in market conditions and underlying collateral values. In addition, various regulatory agencies periodically review the adequacy of the Company’s allowance for loan losses. These agencies may require the Company to make additional provisions based on their judgments about information available to them at the time of their examination.

The Company maintains an allowance for unfunded loan commitments that is maintained at a level that management believes is adequate to absorb estimated probable losses. Adjustments to the allowance are made through other expenses and applied to the allowance which is maintained in other liabilities.

For additional information on the allowance for loan losses and unfunded loan commitments, see Note 9 to the Consolidated Financial Statements and the sections titled "Asset Quality" and "Allowance for Loan Losses and Reserve for Unfunded Loan Commitments" under Item 2.  Management's Discussion and Analysis.

Income Taxes

The Company accounts for income taxes according to the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates applicable to taxable income for the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Valuation reserves are established against certain deferred tax assets when it is more likely than not that the deferred tax assets will not be realized. Increases or decreases in the valuation reserve are charged or credited to the income tax provision.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that ultimately would be sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. The evaluation of a tax position taken is considered by itself and not offset or aggregated with other positions. Tax positions that meet the more likely than not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Interest and penalties associated with unrecognized tax benefits would be recognized in income tax expense on the income statement.

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Significant Accounting Policies (Stock Transactions - Restricted Stock Activity Tables) (Details) (Restricted Stock [Member], USD $)	3 Months Ended
	Mar. 31, 2013
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Nonvested restricted stock: shares	90,975
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	14,000
Nonvested restricted stock: shares	104,975
Nonvested restricted stock: Average Grant Date Fair Value	$ 6.10
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 6.02
Nonvested restricted stock: Average Grant Date Fair Value	$ 6.09

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Fair Value (Fair Value On A Recurring Basis) (Tables) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	$ 91,067	$ 89,538
US Government Agencies Debt Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	6,995	2,568
US States and Political Subdivisions Debt Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	20,906	15,303
Residential Mortgage Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	40,998	45,545
Commercial Mortgage Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	3,681	4,463
Corporate Debt Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	18,487	21,659
Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	87,386	85,075
Fair Value, Inputs, Level 2 [Member] | US Government Agencies Debt Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	6,995	2,568
Fair Value, Inputs, Level 2 [Member] | US States and Political Subdivisions Debt Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	20,906	15,303
Fair Value, Inputs, Level 2 [Member] | Residential Mortgage Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	40,998	45,545
Fair Value, Inputs, Level 2 [Member] | Corporate Debt Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	18,487	21,659
Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	3,681	4,463
Fair Value, Inputs, Level 3 [Member] | Commercial Mortgage Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	$ 3,681	$ 4,463

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Loans (Aging Analysis Of Past Due And Nonaccrual Loans By Class) (Tables) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due	$ 8,092	$ 14,330
Financing Receivable, Recorded Investment, 60 to 89 Days Past Due	794	2,454
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	632	109
Financing Receivable, Recorded Investment, Nonaccrual Status	14,904	17,468
Financing Receivable, Recorded Investment, Past Due	24,422	34,361
Financing Receivable, Recorded Investment, Current	572,149	552,675
Total Loans	596,571	587,036
SBA held to maturity [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due	388	1,912
Financing Receivable, Recorded Investment, 60 to 89 Days Past Due		296
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	212
Financing Receivable, Recorded Investment, Nonaccrual Status	4,441	4,633
Financing Receivable, Recorded Investment, Past Due	5,041	6,841
Financing Receivable, Recorded Investment, Current	51,827	51,752
Total Loans	56,868	58,593
SBA 504 loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due	4,511	5,037
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	415
Financing Receivable, Recorded Investment, Nonaccrual Status	1,235	2,562
Financing Receivable, Recorded Investment, Past Due	6,161	7,599
Financing Receivable, Recorded Investment, Current	33,623	33,839
Total Loans	39,784	41,438
Commercial other [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due	20
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due		109
Financing Receivable, Recorded Investment, Nonaccrual Status	1,091	1,122
Financing Receivable, Recorded Investment, Past Due	1,111	1,231
Financing Receivable, Recorded Investment, Current	26,676	22,812
Total Loans	27,787	24,043
Commercial real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due	651	3,763
Financing Receivable, Recorded Investment, 60 to 89 Days Past Due	52
Financing Receivable, Recorded Investment, Nonaccrual Status	3,079	3,323
Financing Receivable, Recorded Investment, Past Due	3,782	7,086
Financing Receivable, Recorded Investment, Current	266,315	257,353
Total Loans	270,097	264,439
Commercial real estate construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, 60 to 89 Days Past Due		202
Financing Receivable, Recorded Investment, Nonaccrual Status	202
Financing Receivable, Recorded Investment, Past Due	202	202
Financing Receivable, Recorded Investment, Current	12,563	12,880
Total Loans	12,765	13,082
Residential mortgages [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due	2,132	2,651
Financing Receivable, Recorded Investment, 60 to 89 Days Past Due		1,878
Financing Receivable, Recorded Investment, Nonaccrual Status	2,825	2,521
Financing Receivable, Recorded Investment, Past Due	4,957	7,050
Financing Receivable, Recorded Investment, Current	124,613	118,182
Total Loans	129,570	125,232
Residential Purchased Mortgages Segment [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due	71	134
Financing Receivable, Recorded Investment, 60 to 89 Days Past Due	17	78
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	4
Financing Receivable, Recorded Investment, Nonaccrual Status	1,729	2,990
Financing Receivable, Recorded Investment, Past Due	1,821	3,202
Financing Receivable, Recorded Investment, Current	4,954	3,660
Total Loans	6,775	6,862
Home equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due	318	833
Financing Receivable, Recorded Investment, 60 to 89 Days Past Due	725
Financing Receivable, Recorded Investment, Nonaccrual Status	302	308
Financing Receivable, Recorded Investment, Past Due	1,345	1,141
Financing Receivable, Recorded Investment, Current	42,719	44,011
Total Loans	44,064	45,152
Consumer other [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due	1
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	1
Financing Receivable, Recorded Investment, Nonaccrual Status		9
Financing Receivable, Recorded Investment, Past Due	2	9
Financing Receivable, Recorded Investment, Current	2,303	1,249
Total Loans	2,305	1,258
Loans Held for Investment [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due	8,092	14,330
Financing Receivable, Recorded Investment, 60 to 89 Days Past Due	794	2,454
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	632	109
Financing Receivable, Recorded Investment, Nonaccrual Status	14,904	17,468
Financing Receivable, Recorded Investment, Past Due	24,422	34,361
Financing Receivable, Recorded Investment, Current	565,593	545,738
Total Loans	590,015	580,099
SBA Loans Held for Sale [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Current	6,556	6,937
Total Loans	$ 6,556	$ 6,937

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
ASSETS
Cash and due from banks	$ 18,392	$ 23,705
Federal funds sold and interest-bearing deposits	61,584	70,487
Cash and cash equivalents	79,976	94,192
Securities:
Securities available for sale	91,067	89,538
Securities held to maturity (fair value of $28,859 and $22,741, respectively)	28,267	21,515
Total securities	119,334	111,053
Loans:
SBA loans held for sale	6,556	6,937
SBA loans held to maturity	56,868	58,593
SBA 504 loans	39,784	41,438
Commercial loans	310,649	301,564
Residential mortgage loans	136,345	132,094
Consumer loans	46,369	46,410
Total loans	596,571	587,036
Allowance for loan losses	(14,345)	(14,758)
Net loans	582,226	572,278
Premises and equipment, net	15,747	12,062
Bank owned life insurance ("BOLI")	9,472	9,402
Deferred tax assets	6,241	5,954
Federal Home Loan Bank stock	3,989	3,989
Accrued interest receivable	3,362	3,298
Other real estate owned ("OREO")	1,052	1,826
Prepaid FDIC insurance	1,788	1,929
Goodwill and other intangibles	1,516	1,516
Other assets	2,479	2,231
Total assets	827,182	819,730
Liabilities:
Deposits: Noninterest-bearing demand deposits	118,166	114,424
Deposits: Interest-bearing demand deposits	115,374	114,838
Deposits: Savings deposits	295,335	294,533
Deposits: Time deposits, under $100,000	75,374	76,994
Deposits: Time deposits, $100,000 and over	47,868	47,971
Total deposits	652,117	648,760
Borrowed funds	75,000	75,000
Subordinated debentures	15,465	15,465
Accrued interest payable	438	434
Accrued expenses and other liabilities	6,005	2,561
Total liabilities	749,025	742,220
Commitments and contingencies
Shareholders' equity:
Cumulative perpetual preferred stock	20,263	20,115
Common stock	54,357	54,274
Retained earnings	2,584	1,788
Accumulated other comprehensive income	953	1,333
Total shareholders' equity	78,157	77,510
Total liabilities and shareholders' equity	$ 827,182	$ 819,730

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Fair Value (Fair Value Of Financial Instruments) (Tables) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012	Dec. 31, 2011
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Accrued interest receivable	$ 3,362	$ 3,298
Accrued interest payable	438	434
Cash and cash equivalents, Carrying amount	79,976	94,192	71,817	82,574
Securities held to maturity, Carrying amount	28,267	21,515
SBA loans held for sale, Carrying value	6,556	6,937
Loans, net of allowance for loan losses, Carrying value	575,670	565,341
Federal Home Loan Bank Stock, Carrying value	3,989	3,989
SBA Servicing Assets, Carrying value	388	396
Deposits, Carrying value	652,117	648,760
Borrowed funds and subordinated debenture, Carrying value	90,465	90,465
Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash And Cash Equivalents, Estimated fair value	79,976	94,192
Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities Held To Maturity, Estimated fair value	28,859	22,741
SBA Loans Held For Sale, Estimated fair value	7,293	7,582
Loans, Net Of Allowance For Loan Losses, Estimated fair value	574,118	564,528
Federal Home Loan Bank Stock, Estimated fair value	3,989	3,989
Accrued interest receivable	3,362	3,298
Deposits, Estimated fair value	653,668	650,668
Borrowed Funds And Subordinated Debentures, Estimated fair value	99,571	100,257
Accrued interest payable	438	434
Securities held to maturity, Carrying amount	28,267	21,515
Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
SBA servicing assets	$ 388	$ 396

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Consolidated Statements of Changes in Shareholder's Equity (USD $) In Thousands		Preferred Stock [Member]	Common Stock [Member]	Retained Earnings (deficit) [Member]	Accumulated Other Comprehensive Income [Member]	Total
Shareholders' equity at Dec. 31, 2011		$ 19,545	$ 53,746	$ (854)	$ 1,121	$ 73,558
Common Stock, Shares, Beginning Balance at Dec. 31, 2011			7,459
Net income				905		905
Other comprehensive loss, net of tax					(303)	(303)
Accretion of discount on preferred stock		138		(138)
Dividends on preferred stock (5% annually)				(258)		(258)
Common stock issued and related tax effects	[1]		100			100
Shares, Common stock issued and related tax effects	[1]		4
Shareholders' equity at Mar. 31, 2012		19,683	53,846	(345)	818	74,002
Common Stock, Shares, Ending Balance at Mar. 31, 2012			7,463
Shareholders' equity at Dec. 31, 2012		20,115	54,274	1,788	1,333	77,510
Common Stock, Shares, Beginning Balance at Dec. 31, 2012			7,534			7,534
Net income				1,200		1,200
Other comprehensive loss, net of tax					(380)	(380)
Accretion of discount on preferred stock		148		(148)
Dividends on preferred stock (5% annually)				(256)		(256)
Common stock issued and related tax effects	[1]		83			83
Shares, Common stock issued and related tax effects	[1]		14
Shareholders' equity at Mar. 31, 2013		$ 20,263	$ 54,357	$ 2,584	$ 953	$ 78,157
Common Stock, Shares, Ending Balance at Mar. 31, 2013			7,548			7,548

[1] Includes the issuance of common stock under employee benefit plans, which includes nonqualified stock options and restricted stock expense related entries, employee option exercises and the tax benefit of options exercised.

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Allowance for Loan Losses and Reserve for Unfunded Loan Commitments (Activity In The Allowance For Loan Losses By Portfolio Segment ) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning Balance	$ 14,758	$ 16,348
Charge-offs	(1,329)	(1,301)
Recoveries	266	92
Net charge-offs	(1,063)	(1,209)
Provision for loan losses charged to expense	650	1,200
Ending Balance	14,345	16,339
SBA held to maturity [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning Balance	3,378	4,088
Charge-offs	(570)	(615)
Recoveries	137	53
Net charge-offs	(433)	(562)
Provision for loan losses charged to expense	463	113
Ending Balance	3,408	3,639
SBA 504 loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning Balance	1,312	1,423
Charge-offs	(200)	(227)
Recoveries	25	28
Net charge-offs	(175)	(199)
Provision for loan losses charged to expense	159	61
Ending Balance	1,296	1,285
Total Commercial Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning Balance	7,091	8,129
Charge-offs	(375)	(346)
Recoveries	101	11
Net charge-offs	(274)	(335)
Provision for loan losses charged to expense	62	567
Ending Balance	6,879	8,361
Total residential mortgage loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning Balance	1,769	1,703
Charge-offs	(125)	(113)
Recoveries	2
Net charge-offs	(123)	(113)
Provision for loan losses charged to expense	231	180
Ending Balance	1,877	1,770
Total consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning Balance	524	536
Charge-offs	(59)
Recoveries	1
Net charge-offs	(58)
Provision for loan losses charged to expense	90	(9)
Ending Balance	556	527
Unallocated Financing Receivables [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning Balance	684	469
Provision for loan losses charged to expense	(355)	288
Ending Balance	$ 329	$ 757

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Net Income per Share (Narrative) (Details)	3 Months Ended
	Mar. 31, 2013
Net Income per Share [Abstract]
Common Stock Warrants Issued To U.S. Treasury Under Capital Purchase Program In December 2008	764,778

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Fair Value (Tables)

3 Months Ended

Mar. 31, 2013

Fair Value [Abstract]

Quantitative Information About Level 3 Inputs [Table Text Block]

March 31, 2013
Valuation Technique	Unobservable Input	Range		Weighted Average
Discounted Cash Flow	Prepayment rate	8 through 15	%	10.0	%
	Default rate	10 through 15	%	12.5	%
	Loss severity	10 through 25	%	18.0	%

Balances Of Assets And Liabilities Measured At Fair Value On A Recurring Basis [TableTextBlock]

	March 31, 2013
(In thousands)	Level 1		Level 2		Level 3		Total
Securities available for sale:
U.S. Government sponsored entities	$	-	$	6,995	$	-	$	6,995
State and political subdivisions		-		20,906		-		20,906
Residential mortgage-backed securities		-		40,998		-		40,998
Commercial mortgage-backed securities		-		-		3,681		3,681
Corporate and other securities		-		18,487		-		18,487
Total securities available for sale	$	-	$	87,386	$	3,681	$	91,067
	December 31, 2012
(In thousands)	Level 1		Level 2		Level 3		Total
Securities available for sale:
U.S. Government sponsored entities	$	-	$	2,568	$	-	$	2,568
State and political subdivisions		-		15,303		-		15,303
Residential mortgage-backed securities		-		45,545		-		45,545
Commercial mortgage-backed securities		-		-		4,463		4,463
Corporate and other securities		-		21,659		-		21,659
Total securities available for sale	$	-	$	85,075	$	4,463	$	89,538

Schedule Of Fair Value Changes In Level 3 [Table Text Block]

	For the three months ended March 31,
(In thousands)	2013		2012
Commercial mortgage-backed securities:
Balance, beginning of period	$	4,463	$	-
Payoffs		(505)		-
Principal paydowns		(244)		-
Total net losses included in:
Other comprehensive income		(33)		-
Balance, end of period	$	3,681	$	-

Assets And Liabilities Carried On The Balance Sheet By Caption And By Level Within The Hierarchy (As Described Above) [TableTextBlock]

	Fair value at March 31, 2013								Gains (losses) from fair value changes for the
(In thousands)	Level 1		Level 2		Level 3		Total		three months ended March 31, 2013
Financial assets:
OREO	$	-	$	-	$	300	$	300	$	(70)
Impaired collateral-dependent loans		-		-		9,290		9,290		322
	Fair value at March 31, 2012								Gains (losses) from fair value changes for the
(In thousands)	Level 1		Level 2		Level 3		Total		three months ended March 31, 2012
Financial assets:
OREO	$	-	$	-	$	256	$	256	$	(116)
Impaired collateral-dependent loans		-		-		11,851		11,851		568

Carrying Amount And Estimated Fair Values Of The Company's Financial Instruments Not Previously Presented [TableTextBlock]

			March 31, 2013				December 31, 2012
(In thousands)	Fair value level		Carrying amount		Estimated fair value		Carrying amount		Estimated fair value
Financial assets:
Cash and cash equivalents		Level 1	$	79,976	$	79,976	$	94,192	$	94,192
Securities held to maturity (1)		Level 2		28,267		28,859		21,515		22,741
SBA loans held for sale		Level 2		6,556		7,293		6,937		7,582
Loans, net of allowance for loan losses (2)		Level 2		575,670		574,118		565,341		564,528
Federal Home Loan Bank stock		Level 2		3,989		3,989		3,989		3,989
SBA servicing assets		Level 3		388		388		396		396
Accrued interest receivable		Level 2		3,362		3,362		3,298		3,298
Financial liabilities:
Deposits		Level 2		652,117		653,668		648,760		650,668
Borrowed funds and subordinated debentures		Level 2		90,465		99,571		90,465		100,257
Accrued interest payable		Level 2		438		438		434		434

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Income Taxes (Narrative) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Income Taxes [Abstract]
Unrecognized Tax Benefits, Income Tax Penalties and Interest Expense	$ 0	$ 0
Income Tax Expense (Benefit)	$ 538	$ 459
Effective Income Tax Rate, Continuing Operations	31.00%	33.70%
Open Tax Year	2008

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Loans (Tables)

3 Months Ended

Mar. 31, 2013

Loans [Abstract]

Classification Of Loans By Class [Table Text Block]

(In thousands)	March 31, 2013		December 31, 2012
SBA loans held to maturity	$	56,868	$	58,593
SBA 504 loans		39,784		41,438
Commercial loans
Commercial other		27,787		24,043
Commercial real estate		270,097		264,439
Commercial real estate construction		12,765		13,082
Residential mortgage loans
Residential mortgages		129,570		125,232
Purchased residential mortgages		6,775		6,862
Consumer loans
Home equity		44,064		45,152
Consumer other		2,305		1,258
Total loans held for investment	$	590,015	$	580,099
SBA loans held for sale		6,556		6,937
Total loans	$	596,571	$	587,036

Loan Portfolio By Class According To Their Credit Quality Indicators [Table Text Block]

The tables below detail the Company’s loan portfolio by class according to their credit quality indicators discussed in the paragraphs above as of March 31, 2013:

	March 31, 2013
	SBA, SBA 504 & Commercial loans - Internal risk ratings
(In thousands)	Pass		Special mention		Substandard		Total
SBA loans held to maturity	$	45,017	$	3,833	$	8,018	$	56,868
SBA 504 loans		28,401		4,028		7,355		39,784
Commercial loans
Commercial other		23,923		1,713		2,151		27,787
Commercial real estate		237,280		28,487		4,330		270,097
Commercial real estate construction		12,563		-		202		12,765
Total commercial loans		273,766		30,200		6,683		310,649
Total SBA, SBA 504 and commercial loans	$	347,184	$	38,061	$	22,056	$	407,301
	Residential mortgage & Consumer loans - Performing/Nonperforming
(In thousands)			Performing		Nonperforming		Total
Residential mortgage loans
Residential mortgages			$	126,745	$	2,825	$	129,570
Purchased residential mortgages				5,046		1,729		6,775
Total residential mortgage loans				131,791		4,554		136,345
Consumer loans
Home equity				43,762		302		44,064
Consumer other				2,305		-		2,305
Total consumer loans				46,067		302		46,369
Total residential mortgage and consumer loans			$	177,858	$	4,856	$	182,714

The tables below detail the Company’s loan portfolio by class according to their credit quality indicators discussed in the paragraphs above as of December 31, 2012: 

	December 31, 2012
	SBA, SBA 504 & Commercial loans - Internal risk ratings
(In thousands)	Pass		Special mention		Substandard		Total
SBA loans held to maturity	$	45,680	$	4,376	$	8,537	$	58,593
SBA 504 loans		28,726		5,860		6,852		41,438
Commercial loans
Commercial other		20,187		1,669		2,187		24,043
Commercial real estate		229,516		30,733		4,190		264,439
Commercial real estate construction		12,880		202		-		13,082
Total commercial loans		262,583		32,604		6,377		301,564
Total SBA, SBA 504 and commercial loans	$	336,989	$	42,840	$	21,766	$	401,595
	Residential mortgage & Consumer loans - Performing/Nonperforming
(In thousands)			Performing		Nonperforming		Total
Residential mortgage loans
Residential mortgages			$	122,711	$	2,521	$	125,232
Purchased residential mortgages				3,872		2,990		6,862
Total residential mortgage loans				126,583		5,511		132,094
Consumer loans
Home equity				44,844		308		45,152
Consumer other				1,249		9		1,258
Total consumer loans				46,093		317		46,410
Total residential mortgage and consumer loans			$	172,676	$	5,828	$	178,504

Aging Analysis Of Past Due And Nonaccrual Loans By Loan Class [Table Text Block]

	March 31, 2013
(In thousands)	30-59 days past due		60-89 days past due		90+ days and still accruing		Nonaccrual (1)		Total past due		Current		Total loans
SBA loans held to maturity	$	388	$	-	$	212	$	4,441	$	5,041	$	51,827	$	56,868
SBA 504 loans		4,511		-		415		1,235		6,161		33,623		39,784
Commercial loans
Commercial other		20		-		-		1,091		1,111		26,676		27,787
Commercial real estate		651		52		-		3,079		3,782		266,315		270,097
Commercial real estate construction		-		-		-		202		202		12,563		12,765
Residential mortgage loans
Residential mortgages		2,132		-		-		2,825		4,957		124,613		129,570
Purchased residential mortgages		71		17		4		1,729		1,821		4,954		6,775
Consumer loans
Home equity		318		725		-		302		1,345		42,719		44,064
Consumer other		1		-		1		-		2		2,303		2,305
Total loans held for investment	$	8,092	$	794	$	632	$	14,904	$	24,422	$	565,593	$	590,015
SBA loans held for sale		-		-		-		-		-		6,556		6,556
Total loans	$	8,092	$	794	$	632	$	14,904	$	24,422	$	572,149	$	596,571

(1) At March 31, 2013, nonaccrual loans included $1.1 million of troubled debt restructurings ("TDRs") and $1.9 million of loans guaranteed by the SBA.  The remaining $15.1 million of TDRs are in accrual status because they are performing in accordance with their restructured terms.

	December 31, 2012
(In thousands)	30-59 days past due		60-89 days past due		90+ days and still accruing		Nonaccrual (1)		Total past due		Current		Total loans
SBA loans held to maturity	$	1,912	$	296	$	-	$	4,633	$	6,841	$	51,752	$	58,593
SBA 504 loans		5,037		-		-		2,562		7,599		33,839		41,438
Commercial loans
Commercial other		-		-		109		1,122		1,231		22,812		24,043
Commercial real estate		3,763		-		-		3,323		7,086		257,353		264,439
Commercial real estate construction		-		202		-		-		202		12,880		13,082
Residential mortgage loans
Residential mortgages		2,651		1,878		-		2,521		7,050		118,182		125,232
Purchased residential mortgages		134		78		-		2,990		3,202		3,660		6,862
Consumer loans
Home equity		833		-		-		308		1,141		44,011		45,152
Consumer other		-		-		-		9		9		1,249		1,258
Total loans held for investment	$	14,330	$	2,454	$	109	$	17,468	$	34,361	$	545,738	$	580,099
SBA loans held for sale		-		-		-		-		-		6,937		6,937
Total loans	$	14,330	$	2,454	$	109	$	17,468	$	34,361	$	552,675	$	587,036

At December 31, 2012, nonaccrual loans included $1.1 million of TDRs and $1.8 million of loans guaranteed by the SBA.  The remaining $13.6 million of TDRs are in accrual status because they are performing in accordance with their restructured terms.

Impaired Loans With The Associated Allowance Amount [Table Text Block]

	March 31, 2013
(In thousands)	Unpaid principal balance		Recorded investment		Specific reserves
With no related allowance:
SBA loans held to maturity (1)	$	1,009	$	709	$	-
SBA 504 loans		4,654		4,404		-
Commercial loans
Commercial other		2,026		2,027		-
Commercial real estate		5,317		5,142		-
Total commercial loans		7,343		7,169		-
Total impaired loans with no related allowance		13,006		12,282		-
With an allowance:
SBA loans held to maturity (1)		3,635		2,789		1,050
SBA 504 loans		1,297		1,097		206
Commercial loans
Commercial other		26		13		13
Commercial real estate		6,952		6,868		328
Commercial real estate construction		202		202		82
Total commercial loans		7,180		7,083		423
Total impaired loans with a related allowance		12,112		10,969		1,679
Total individually evaluated impaired loans:
SBA loans held to maturity (1)		4,644		3,498		1,050
SBA 504 loans		5,951		5,501		206
Commercial loans
Commercial other		2,052		2,040		13
Commercial real estate		12,269		12,010		328
Commercial real estate construction		202		202		82
Total commercial loans		14,523		14,252		423
Total individually evaluated impaired loans	$	25,118	$	23,251	$	1,679

(1) Balances are reduced by amount guaranteed by the SBA of $1.9 million at March 31, 2013.

The following table provides detail on the Company’s impaired loans with the associated allowance amount, if applicable, as of December 31, 2012:

	December 31, 2012
(In thousands)	Unpaid principal balance		Recorded investment		Specific reserves
With no related allowance:
SBA loans held to maturity (1)	$	1,352	$	866	$	-
SBA 504 loans		5,812		5,555		-
Commercial loans
Commercial other		2,032		2,033		-
Commercial real estate		5,220		4,752		-
Total commercial loans		7,252		6,785		-
Total impaired loans with no related allowance		14,416		13,206		-
With an allowance:
SBA loans held to maturity (1)		3,355		2,846		1,159
SBA 504 loans		1,297		1,297		217
Commercial loans
Commercial other		126		38		38
Commercial real estate		6,014		5,979		587
Total commercial loans		6,140		6,017		625
Total impaired loans with a related allowance		10,792		10,160		2,001
Total individually evaluated impaired loans:
SBA loans held to maturity (1)		4,707		3,712		1,159
SBA 504 loans		7,109		6,852		217
Commercial loans
Commercial other		2,158		2,071		38
Commercial real estate		11,234		10,731		587
Total commercial loans		13,392		12,802		625
Total individually evaluated impaired loans	$	25,208	$	23,366	$	2,001

Balances are reduced by amount guaranteed by the SBA of $1.8 million at December 31, 2012.

Average Recorded Investments In Impaired Loans And The Related Amount Of Interest Recognized [TableText Block]

	For the three months ended March 31,
	2013				2012
(In thousands)	Average recorded investment		Interest income recognized on impaired loans		Average recorded investment		Interest income recognized on impaired loans
SBA loans held to maturity (1)	$	3,542	$	57	$	5,754	$	56
SBA 504 loans		7,485		88		6,463		70
Commercial loans
Commercial other		2,042		61		2,769		21
Commercial real estate		11,026		83		18,360		130
Commercial real estate construction		135		-		533		-
Residential mortgage loans
Residential mortgages		2,757		-		1,650		-
Residential construction		-		-		2,169		-
Purchased residential mortgages		2,149		-		2,006		-
Consumer loans
Home equity		338		8		285		-
Consumer other		3		-		11		-
Total	$	29,477	$	297	$	40,000	$	277

(1) Balances are reduced by the average amount guaranteed by the Small Business Administration of $1.7 million and $639 thousand for the three months ended March 31, 2013 and 2012, respectively.

Troubled Debt Restructurings Loans Modified [Table Text Block]

The following table details loans modified during the three months ended March 31, 2013 and 2012, including the number of modifications, the recorded investment at the time of the modification and the quarter-to-date impact to interest income as a result of the modification.  

	For the three months ended March 31,
	2013						2012
(In thousands, except number of contracts)	Number of contracts		Recorded investment at time of modification		Impact of interest rate change on income		Number of contracts		Recorded investment at time of modification		Impact of interest rate change on income
Commercial loans
Commercial other		-	$	-	$	-		3	$	1,291	$	-
Commercial real estate		1		2,684		-		3		1,856		-
Total		1	$	2,684	$	-		6	$	3,147	$	-

There were no loans modified as a TDR within the previous 12 months where a concession was made and the loan subsequently defaulted at some point during the three months ended March 31, 2013 or 2012.  In this case, subsequent default is defined as 90 days past due or transferred to nonaccrual status. 

Troubled Debt Restructurings Types Of Modifications [TableText Block]

The following tables show the types of modifications done during the three months ended March 31, 2013 and 2012, with the respective loan balances as of those period ends:

	For the three months ended March 31, 2013
(In thousands)	Commercial real estate		Total
Type of modification:
Interest only with reduced interest rate	$	2,684	$	2,684
Total TDRs	$	2,684	$	2,684

	For the three months ended March 31, 2012
(In thousands)	Commercial other		Commercial real estate		Total
Type of modification:
Interest only	$	1,291	$	1,856	$	3,147
Total TDRs	$	1,291	$	1,856	$	3,147

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
OPERATING ACTIVITIES:
Net income	$ 1,200	$ 905
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	650	1,200
Net amortization of purchase premiums and discounts on securities	208	217
Depreciation and amortization	365	270
Deferred income tax expense	(32)	(36)
Net security gains	(226)	(224)
Stock compensation expense	83	83
Loss on sale of OREO		117
Valuation writedowns on OREO	70
Gain on sale of mortgage loans held for sale, net	(477)	(411)
Gain on sale of SBA loans held for sale, net	(241)	(157)
Origination of mortgage loans held for sale	(22,599)	(21,242)
Origination of SBA loans held for sale	(1,911)	(2,240)
Proceeds from sale of mortgage loans held for sale, net	23,076	21,653
Proceeds from sale of SBA loans held for sale, net	2,533	2,050
Loss on sale or disposal of premises and equipment		17
Net change in other assets and liabilities	(674)	200
Net cash provided by operating activities	2,025	2,402
INVESTING ACTIVITIES:
Purchases of securities held to maturity	(8,252)
Purchases of securities available for sale	(13,086)	(32,108)
Maturities and principal payments on securities held to maturity	1,446	855
Maturities and principal payments on securities available for sale	5,692	7,363
Proceeds from sale of securities available for sale	5,303	2,824
Proceeds from sale of OREO	704	1,640
Net decrease (increase) in loans	(11,051)	8,596
Purchases of premises and equipment	(96)	(1,222)
Net cash used in investing activities	(19,340)	(12,052)
FINANCING ACTIVITIES:
Net increase (decrease) in deposits	3,357	(870)
Proceeds from exercise of stock options		21
Dividends on preferred stock	(258)	(258)
Net cash provided by (used in) financing activities	3,099	(1,107)
Decrease in cash and cash equivalents	(14,216)	(10,757)
Cash and cash equivalents, beginning of period	94,192	82,574
Cash and cash equivalents, end of period	79,976	71,817
SUPPLEMENTAL DISCLOSURES:
Cash: Interest paid	1,620	2,275
Cash: Income taxes paid	481	389
Noncash investing activities:
Transfer of loans to OREO		350
Purchase of leased branch locations	$ 3,893

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Consolidated Balance Sheets [Abstract]
Held to maturity securities, fair value	$ 28,859	$ 22,741
Preferred Stock, Shares Outstanding	21	21
Issued common shares	7,548	7,534
Outstanding common shares	7,548	7,534

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New Accounting Pronouncements

3 Months Ended

Mar. 31, 2013

New Accounting Pronouncements [Abstract]

New Accounting Pronouncements

Note 10.NewAccountingPronouncements

There are currently no new accounting pronouncements that are applicable to the Company that have not already been adopted or addressed in previous filings.

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Document and Entity Information	3 Months Ended
	Mar. 31, 2013	May 01, 2013
Document and Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1
Entity Registrant Name	UNITY BANCORP INC /NJ/
Entity Central Index Key	0000920427
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		7,548,174
Trading Symbol	unty
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Well-known Seasoned Issuer	No

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Significant Accounting Policies (Policy)

3 Months Ended

Mar. 31, 2013

Significant Accounting Policies [Abstract]

Overview [Policy Text Block]

The accompanying Consolidated Financial Statements include the accounts of Unity Bancorp, Inc. (the "Parent Company") and its wholly-owned subsidiary, Unity Bank (the "Bank" or when consolidated with the Parent Company, the "Company"), and reflect all adjustments and disclosures which are generally routine and recurring in nature, and in the opinion of management, necessary for a fair presentation of interim results.  Unity Investment Services, Inc., a wholly-owned subsidiary of the Bank, is used to hold part of the Bank’s investment portfolio.  All significant intercompany balances and transactions have been eliminated in consolidation.  Certain reclassifications have been made to prior period amounts to conform to the current year presentation, with no impact on current earnings.  The financial information has been prepared in accordance with U.S. generally accepted accounting principles and has not been audited.  In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses during the reporting periods.  Actual results could differ from those estimates.  Amounts requiring the use of significant estimates include the allowance for loan losses, valuation of deferred tax and servicing assets, the carrying value of loans held for sale and other real estate owned, the valuation of securities and the determination of other-than-temporary impairment for securities and fair value disclosures.  Management believes that the allowance for loan losses is adequate.  While management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions.  The Company has evaluated subsequent events for potential recognition and/or disclosure through the date the Consolidated Financial Statements included in this Quarterly Report on Form 10-Q were available to be issued.

The interim unaudited Consolidated Financial Statements included herein have been prepared in accordance with instructions for Form 10-Q and the rules and regulations of the Securities and Exchange Commission (“SEC”) and consist of normal recurring adjustments necessary for the fair presentation of interim results.  The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results which may be expected for the entire year.  As used in this Form 10-Q, “we” and “us” and “our” refer to Unity Bancorp, Inc., and its consolidated subsidiary, Unity Bank, depending on the context.  Certain information and financial disclosures required by generally accepted accounting principles have been condensed or omitted from interim reporting pursuant to SEC rules.  Interim financial statements should be read in conjunction with the Company’s Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

Stock-Based Compensation [Policy Text Block]

Stock Transactions

Stock Option Plans

The Company has incentive and nonqualified option plans, which allow for the grant of options to officers, employees and members of the Board of Directors.  Transactions under the Company’s stock option plans for the three months ended March 31, 2013 are summarized in the following table:

	Shares		Weighted average exercise price		Weighted average remaining contractual life (in years)		Aggregate intrinsic value
Outstanding at December 31, 2012		516,332	$	7.06		5.4	$	327,725
Options granted		25,000		6.02
Options exercised		-		-
Options forfeited		-		-
Options expired		-		-
Outstanding at March 31, 2013		541,332	$	7.01		5.4	$	391,318
Exercisable at March 31, 2013		415,837	$	7.21		4.3	$	363,559

Grants under the Company’s incentive and nonqualified option plans generally vest over 3 years and must be exercised within 10 years of the date of grant.  The exercise price of each option is the market price on the date of grant.  As of March 31, 2013, 1,720,529 shares have been reserved for issuance upon the exercise of options, 541,332 option grants are outstanding, and 1,097,521 option grants have been exercised, forfeited or expired, leaving 81,676 shares available for grant.

The fair values of the options granted during the three months ended March 31, 2013 and 2012 were estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	For the three months ended March 31,
	2013			2012
Number of options granted		25,000			N/A
Weighted average exercise price	$	6.02		$	N/A
Weighted average fair value of options	$	2.91		$	N/A
Expected life in years (1)		5.11			N/A
Expected volatility (2)		52.81	%		N/A	%
Risk-free interest rate (3)		0.77	%		N/A	%
Dividend yield (4)		-	%		N/A	%

(1) The expected life of the options was estimated based on historical employee behavior and represents the period of time that options granted are expected to be outstanding.

(2) The expected volatility of the Company’s stock price was based on the historical volatility over the period commensurate with the expected life of the options. 

(3) The risk-free interest rate is the U.S. Treasury rate commensurate with the expected life of the options on the date of grant.

(4) The expected dividend yield is the projected annual yield based on the grant date stock price.

Upon exercise, the Company issues shares from its authorized but unissued common stock to satisfy the options.  The following table presents information about options exercised during three months ended March 31, 2013 and 2012:

	For the three months ended March 31,
	2013		2012
Number of options exercised		N/A		3,841
Total intrinsic value of options exercised	$	N/A	$	6,055
Cash received from options exercised		N/A		21,410
Tax deduction realized from options exercised		N/A		513

The following table summarizes information about stock options outstanding and exercisable at March 31, 2013:

		Options outstanding						Options exercisable
Range of exercise prices		Options outstanding		Weighted average remaining contractual life (in years)		Weighted average exercise price		Options exercisable		Weighted average exercise price
$	0.00 - 4.00		119,750		6.1	$	3.87		119,750	$	3.87
	4.01 - 8.00		256,675		7.4		6.47		131,180		6.59
	8.01 - 12.00		120,256		1.0		9.22		120,256		9.22
	12.01 - 16.00		44,651		3.8		12.62		44,651		12.62
	Total		541,332		5.4	$	7.01		415,837	$	7.21

Financial Accounting Standards Board Accounting Standards Codification ("FASB ASC") Topic 718, “Compensation - Stock Compensation,” requires an entity to recognize the fair value of equity awards as compensation expense over the period during which an employee is required to provide service in exchange for such an award (vesting period).  Compensation expense related to stock options and the related income tax benefit for the three months ended March 31, 2013 and 2012 are detailed in the following table:

	For the three months ended March 31,
	2013		2012
Compensation expense	$	35,020	$	40,215
Income tax benefit		13,987		14,319

As of March 31, 2013, unrecognized compensation costs related to nonvested share-based compensation arrangements granted under the Company’s stock option plans totaled approximately $278 thousand.  That cost is expected to be recognized over a weighted average period of 2.0years.

Restricted Stock Awards

Restricted stock is issued under the stock bonus program to reward employees and directors and to retain them by distributing stock over a period of time.  The following table summarizes nonvested restricted stock activity for the three months ended March 31, 2013:

	Shares		Average grant date fair value
Nonvested restricted stock at December 31, 2012		90,975	$	6.10
Granted		14,000		6.02
Vested		-		-
Forfeited		-		-
Nonvested restricted stock at March 31, 2013		104,975	$	6.09

Restricted stock awards granted to date vest over a period of 4 years and are recognized as compensation to the recipient over the vesting period.  The awards are recorded at fair market value at the time of grant and amortized into salary expense on a straight line basis over the vesting period.  As of March 31, 2013, 221,551 shares of restricted stock were reserved for issuance, of which 4,663 shares are available for grant.

Restricted stock awards granted during the three months ended March 31, 2013 and 2012 were as follows:

	For the three months ended March 31,
	2013		2012
Number of shares granted		14,000		N/A
Average grant date fair value	$	6.02	$	N/A

Compensation expense related to restricted stock for the three months ended March 31, 2013 and 2012 is detailed in the following table:

	For the three months ended March 31,
	2013		2012
Compensation expense	$	47,935	$	43,358

As of March 31, 2013, there was approximately $552 thousand of unrecognized compensation cost related to nonvested restricted stock awards granted under the Company’s stock incentive plans.  That cost is expected to be recognized over a weighted average period of 3.0years.

Securities [Policy Text Block]

Other-Than-Temporary Impairment

The Company has a process in place to identify debt securities that could potentially incur credit impairment that is other-than-temporary. This process involves monitoring late payments, pricing levels, downgrades by rating agencies, key financial ratios, financial statements, revenue forecasts and cash flow projections as indicators of credit issues. Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concern warrants such evaluation. This evaluation considers relevant facts and circumstances in evaluating whether a credit or interest rate-related impairment of a security is other-than-temporary. Relevant facts and circumstances considered include: (1) the extent and length of time the fair value has been below cost; (2) the reasons for the decline in value; (3) the financial position and access to capital of the issuer, including the current and future impact of any specific events and (4) for fixed maturity securities, our intent to sell a security or whether it is more likely than not we will be required to sell the security before the recovery of its amortized cost which, in some cases, may extend to maturity and for equity securities, our ability and intent to hold the security for a forecasted period of time that allows for the recovery in value.

Management assesses its intent to sell or whether it is more likely than not that it will be required to sell a security before recovery of its amortized cost basis less any current-period credit losses. For debt securities that are considered other-than-temporarily impaired with no intent to sell and no requirement to sell prior to recovery of its amortized cost basis, the amount of the impairment is separated into the amount that is credit related (credit loss component) and the amount due to all other factors. The credit loss component is recognized in earnings and is the difference between the security’s amortized cost basis and the present value of its expected future cash flows. The remaining difference between the security’s fair value and the present value of future expected cash flows is due to factors that are not credit related and is recognized in other comprehensive income. For debt securities where management has the intent to sell, the amount of the impairment is reflected in earnings as realized losses.

The present value of expected future cash flows is determined using the best estimate cash flows discounted at the effective interest rate implicit to the security at the date of purchase or the current yield to accrete an asset-backed or floating rate security. The methodology and assumptions for establishing the best estimate cash flows vary depending on the type of security. The asset-backed securities cash flow estimates are based on bond specific facts and circumstances that may include collateral characteristics, expectations of delinquency and default rates, loss severity and prepayment speeds and structural support, including subordination and guarantees. The corporate bond cash flow estimates are derived from scenario-based outcomes of expected corporate restructurings or the disposition of assets using bond specific facts and circumstances including timing, security interests and loss severity.

Transfers of Financial Assets [Policy Text Block]

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Loan Held to Maturity and Loans Held for Sale [Policy Text Block]

Loans

Loans Held for Sale

Loans held for sale represent the guaranteed portion of SBA loans and are reflected at the lower of aggregate cost or market value. The Company originates loans to customers under an SBA program that historically has provided for SBA guarantees of up to 90 percent of each loan. The Company generally sells the guaranteed portion of its SBA loans to a third party and retains the servicing, holding the nonguaranteed portion in its portfolio. The net amount of loan origination fees on loans sold is included in the carrying value and in the gain or loss on the sale. When sales of SBA loans do occur, the premium received on the sale and the present value of future cash flows of the servicing assets are recognized in income. All criteria for sale accounting must be met in order for the loan sales to occur; see details under the “Transfers of Financial Assets” heading above.

Servicing assets represent the estimated fair value of retained servicing rights, net of servicing costs, at the time loans are sold. Servicing assets are amortized in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on stratifying the underlying financial assets by date of origination and term. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Any impairment, if temporary, would be reported as a valuation allowance.

Serviced loans sold to others are not included in the accompanying Consolidated Balance Sheets. Income and fees collected for loan servicing are credited to noninterest income when earned, net of amortization on the related servicing assets.

Loans Held to Maturity

Loans held to maturity are stated at the unpaid principal balance, net of unearned discounts and deferred loan origination fees and costs. In accordance with the level yield method, loan origination fees, net of direct loan origination costs, are deferred and recognized over the estimated life of the related loans as an adjustment to the loan yield. Interest is credited to operations primarily based upon the principal balance outstanding.

Loans are reported as past due when either interest or principal is unpaid in the following circumstances: fixed payment loans when the borrower is in arrears for two or more monthly payments; open end credit for two or more billing cycles; and single payment notes if interest or principal remains unpaid for 30 days or more.

Nonperforming loans consist of loans that are not accruing interest as a result of principal or interest being in default for a period of 90 days or more or when the ability to collect principal and interest according to the contractual terms is in doubt (nonaccrual loans). When a loan is classified as nonaccrual, interest accruals are discontinued and all past due interest previously recognized as income is reversed and charged against current period earnings. Generally, until the loan becomes current, any payments received from the borrower are applied to outstanding principal until such time as management determines that the financial condition of the borrower and other factors merit recognition of a portion of such payments as interest income. Loans may be returned to an accrual status when the ability to collect is reasonably assured and when the loan is brought current as to principal and interest.

Loans are charged off when collection is sufficiently questionable and when the Company can no longer justify maintaining the loan as an asset on the balance sheet. Loans qualify for charge-off when, after thorough analysis, all possible sources of repayment are insufficient. These include: 1) potential future cash flows, 2) value of collateral, and/or 3) strength of co-makers and guarantors. All unsecured loans are charged off upon the establishment of the loan’s nonaccrual status. Additionally, all loans classified as a loss or that portion of the loan classified as a loss is charged off. All loan charge-offs are approved by the Board of Directors.

Troubled debt restructurings ("TDRs") occur when a creditor, for economic or legal reasons related to a debtor’s financial condition, grants a concession to the debtor that it would not otherwise consider. These concessions typically include reductions in interest rate, extending the maturity of a loan, or a combination of both. Interest income on accruing TDRs is credited to operations primarily based upon the principal amount outstanding, as stated in the paragraphs above.

The Company evaluates its loans for impairment. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Company has defined impaired loans to be all TDRs and nonperforming loans. Impairment is evaluated in total for smaller-balance loans of a similar nature (consumer and residential mortgage loans), and on an individual basis for all other loans. Impairment of a loan is measured based on the present value of expected future cash flows, discounted at the loan's effective interest rate, or as a practical expedient, based on a loan’s observable market price or the fair value of collateral, net of estimated costs to sell, if the loan is collateral-dependent. If the value of the impaired loan is less than the recorded investment in the loan, the Company establishes a valuation allowance, or adjusts existing valuation allowances, with a corresponding charge to the provision for loan losses.

For additional information on loans, see Note 8 to the Consolidated Financial Statements and the section titled "Loan Portfolio" under Item 2.  Management's Discussion and Analysis.

Allowance for Loan Losses and Reserve for Unfunded Loan Commitments [Policy Text Block]

Allowance for Loan Losses and Reserve for Unfunded Loan Commitments

The allowance for loan losses is maintained at a level management considers adequate to provide for probable loan losses as of the balance sheet date. The allowance is increased by provisions charged to expense and is reduced by net charge-offs.

The level of the allowance is based on management’s evaluation of probable losses in the loan portfolio, after consideration of prevailing economic conditions in the Company’s market area, the volume and composition of the loan portfolio, and historical loan loss experience. The allowance for loan losses consists of specific reserves for individually impaired credits and TDRs, reserves for nonimpaired loans based on historical loss factors and reserves based on general economic factors and other qualitative risk factors such as changes in delinquency trends, industry concentrations or local/national economic trends. This risk assessment process is performed at least quarterly, and, as adjustments become necessary, they are realized in the periods in which they become known.

Although management attempts to maintain the allowance at a level deemed adequate to provide for probable losses, future additions to the allowance may be necessary based upon certain factors including changes in market conditions and underlying collateral values. In addition, various regulatory agencies periodically review the adequacy of the Company’s allowance for loan losses. These agencies may require the Company to make additional provisions based on their judgments about information available to them at the time of their examination.

The Company maintains an allowance for unfunded loan commitments that is maintained at a level that management believes is adequate to absorb estimated probable losses. Adjustments to the allowance are made through other expenses and applied to the allowance which is maintained in other liabilities.

For additional information on the allowance for loan losses and unfunded loan commitments, see Note 9 to the Consolidated Financial Statements and the sections titled "Asset Quality" and "Allowance for Loan Losses and Reserve for Unfunded Loan Commitments" under Item 2.  Management's Discussion and Analysis.

Income Taxes [Policy Text Block]

Income Taxes

The Company accounts for income taxes according to the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates applicable to taxable income for the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Valuation reserves are established against certain deferred tax assets when it is more likely than not that the deferred tax assets will not be realized. Increases or decreases in the valuation reserve are charged or credited to the income tax provision.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that ultimately would be sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. The evaluation of a tax position taken is considered by itself and not offset or aggregated with other positions. Tax positions that meet the more likely than not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Interest and penalties associated with unrecognized tax benefits would be recognized in income tax expense on the income statement.

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Consolidated Statements of Income (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
INTEREST INCOME
Federal funds sold and interest-bearing deposits	$ 14	$ 32
Federal Home Loan Bank stock	44	51
Securities:
Taxable	647	752
Tax-exempt	120	142
Total securities	767	894
Loans:
SBA loans	777	924
SBA 504 loans	651	759
Commercial loans	4,001	4,183
Residential mortgage loans	1,550	1,655
Consumer loans	509	560
Total loans	7,488	8,081
Total interest income	8,313	9,058
INTEREST EXPENSE
Interest-bearing demand deposits	101	136
Savings deposits	177	354
Time deposits	546	913
Borrowed funds and subordinated debentures	800	847
Total interest expense	1,624	2,250
Net interest income	6,689	6,808
Provision for loan losses	650	1,200
Net interest income after provision for loan losses	6,039	5,608
NONINTEREST INCOME
Branch fee income	347	386
Service and loan fee income	304	302
Gain on sale of SBA loans held for sale, net	241	157
Gain on sale of mortgage loans, net	477	411
BOLI income	70	73
Net security gains	226	224
Other income	160	162
Total noninterest income	1,825	1,715
NONINTEREST EXPENSE
Compensation and benefits	3,176	3,182
Occupancy	694	609
Processing and communications	561	534
Furniture and equipment	365	362
Professional services	190	190
Loan collection costs	177	180
OREO expenses	127	124
Deposit insurance	149	171
Advertising	120	146
Other expenses	567	461
Total noninterest expense	6,126	5,959
Income before provision for income taxes	1,738	1,364
Provision for income taxes	538	459
Net income	1,200	905
Preferred stock dividends and discount accretion	404	396
Income available to common shareholders	$ 796	$ 509
Net income per common share
Basic	$ 0.11	$ 0.07
Diluted	$ 0.10	$ 0.07
Weighted average common shares outstanding:
Basic	7,538	7,460
Diluted	7,845	7,792

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Other Comprehensive Income

3 Months Ended

Mar. 31, 2013

Other Comprehensive Income [Abstract]

Other Comprehensive Income

NOTE 5.  Other Comprehensive Income

The following table shows the changes in other comprehensive income for the three months ended March 31, 2013 and 2012:

	For the three months ended March 31,
	2013						2012
(In thousands)	Pre-tax		Tax		After-tax		Pre-tax		Tax		After-tax
Balance, beginning of period					$	1,333					$	1,121
Unrealized holding losses on securities arising during period	$	(409)	$	(179)		(230)	$	(281)	$	(127)		(154)
Less: Reclassification adjustment for gains on securities included in net income		226		76		150		224		75		149
Net unrealized losses on securities arising during the period		(635)		(255)		(380)		(505)		(202)		(303)
Balance, end of period					$	953					$	818

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Income Taxes

3 Months Ended

Mar. 31, 2013

Income Taxes [Abstract]

Income Taxes

NOTE 4.  Income Taxes

The Company follows FASB ASC Topic 740, “Income Taxes,” which prescribes a threshold for the financial statement recognition of income taxes and provides criteria for the measurement of tax positions taken or expected to be taken in a tax return.  ASC 740 also includes guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition of income taxes.  

For the quarter ended March 31, 2013, the Company reported income tax expense of $538 thousand for an effective tax rate of 31.0 percent, compared to an income tax expense of $459 thousand and effective tax rate of 33.7 percent for the prior year’s quarter.  The Company did not recognize or accrue any interest or penalties related to income taxes during the three months ended March 31, 2013 or 2012.  The Company did not have an accrual for uncertain tax positions as of March 31, 2013 or December 31, 2012, as deductions taken and benefits accrued are based on widely understood administrative practices and procedures and are based on clear and unambiguous tax law.  Tax returns for all years 2008 and thereafter are subject to future examination by tax authorities.

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Securities (Tables)

3 Months Ended

Mar. 31, 2013

Securities [Abstract]

Major Components Of Securities Available For Sale ("AFS") And Held To Maturity ("HTM") At Amortized Cost And Estimated Fair Value [Table Text Block]

	March 31, 2013								December 31, 2012
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value		Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Available for sale:
U.S. Government sponsored entities	$	6,927	$	72	$	(4)	$	6,995	$	2,482	$	86	$	-	$	2,568
State and political subdivisions		20,557		499		(150)		20,906		14,690		613		-		15,303
Residential mortgage-backed securities		39,669		1,417		(88)		40,998		43,984		1,684		(123)		45,545
Commercial mortgage-backed securities		3,674		10		(3)		3,681		4,423		42		(2)		4,463
Corporate and other securities		18,658		247		(418)		18,487		21,741		490		(572)		21,659
Total securities available for sale	$	89,485	$	2,245	$	(663)	$	91,067	$	87,320	$	2,915	$	(697)	$	89,538
Held to maturity:
U.S. Government sponsored entities	$	6,049	$	1	$	(31)	$	6,019	$	5,050	$	38	$	-	$	5,088
State and political subdivisions		2,744		291		-		3,035		2,746		288		-		3,034
Residential mortgage-backed securities		11,653		345		(11)		11,987		11,048		374		(13)		11,409
Commercial mortgage-backed securities		6,842		107		(106)		6,843		2,671		539		-		3,210
Corporate and other securities		979		-		(4)		975		-		-		-		-
Total securities held to maturity	$	28,267	$	744	$	(152)	$	28,859	$	21,515	$	1,239	$	(13)	$	22,741

Remaining Contractual Maturities And Yields Of Securities Within The Investment Portfolios [Table Text Block]

	Within one year				After one through five years				After five through ten years				After ten years				Total carrying value
(In thousands, except percentages)	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
Available for sale at fair value:
U.S. Government sponsored entities	$	-	-	%	$	1,108	1.17	%	$	1,017	2.13	%	$	4,870	2.09	%	$	6,995	1.95	%
State and political subdivisions		1,504	0.70			841	2.55			13,151	2.92			5,410	2.83			20,906	2.72
Residential mortgage-backed securities		46	3.11			208	4.41			680	4.44			40,064	2.72			40,998	2.76
Commercial mortgage-backed securities		-	-			-	-			-	-			3,681	3.11			3,681	3.11
Corporate and other securities		-	-			1,401	1.80			6,907	3.14			10,179	2.33			18,487	2.59
Total securities available for sale	$	1,550	0.77	%	$	3,558	1.93	%	$	21,755	3.00	%	$	64,204	2.64	%	$	91,067	2.67	%
Held to maturity at cost:
U.S. Government sponsored entities	$	-	-	%	$	-	-	%	$	-	-	%	$	6,049	1.80	%	$	6,049	1.80	%
State and political subdivisions		624	0.75			-	-			-	-			2,120	4.70			2,744	3.80
Residential mortgage-backed securities		48	3.67			871	4.75			610	5.00			10,124	2.05			11,653	2.42
Commercial mortgage-backed securities		-	-			-	-			-	-			6,842	3.80			6,842	3.80
Corporate and other securities		-	-			-	-			979	2.95			-	-			979	2.95
Total securities held to maturity	$	672	0.96	%	$	871	4.75	%	$	1,589	3.74	%	$	25,135	2.69	%	$	28,267	2.77	%

Fair Value Of Securities With Unrealized Losses By Length Of Time That The Individual Securities Have Been In A Continuous Unrealized Loss Position [Table Text Block]

	March 31, 2013
			Less than 12 months				12 months and greater				Total
(In thousands, except number in a loss position)	Total number in a loss position		Estimated fair value		Unrealized loss		Estimated fair value		Unrealized loss		Estimated fair value		Unrealized loss
Available for sale:
U.S. Government sponsored entities		2	$	2,005	$	(4)	$	-	$	-	$	2,005	$	(4)
State and political subdivisions		10		6,196		(150)		-		-		6,196		(150)
Residential mortgage-backed securities		3		1,945		(25)		1,773		(63)		3,718		(88)
Commercial mortgage-backed securities		4		684		(3)		158		-		842		(3)
Corporate and other securities		7		3,455		(38)		3,144		(380)		6,599		(418)
Total temporarily impaired securities		26	$	14,285	$	(220)	$	5,075	$	(443)	$	19,360	$	(663)
Held to maturity:
U.S. Government sponsored entities		2	$	4,019	$	(31)	$	-	$	-	$	4,019	$	(31)
Residential mortgage-backed securities		3		2,246		(8)	$	214		(3)	$	2,460		(11)
Commercial mortgage-backed securities		2		4,070		(106)		-		-		4,070		(106)
Corporate and other securities		1		974		(4)		-		-		974		(4)
Total temporarily impaired securities		8	$	11,309	$	(149)	$	214	$	(3)	$	11,523	$	(152)
	December 31, 2012
			Less than 12 months				12 months and greater				Total
(In thousands, except number in a loss position)	Total number in a loss position		Estimated fair value		Unrealized loss		Estimated fair value		Unrealized loss		Estimated fair value		Unrealized loss
Available for sale:
Residential mortgage-backed securities		5	$	3,272	$	(43)	$	1,951	$	(80)	$	5,223	$	(123)
Commercial mortgage-backed securities		4		2,351		(2)		-		-		2,351		(2)
Corporate and other securities		6		2,486		(26)		2,994		(546)		5,480		(572)
Total temporarily impaired securities		15	$	8,109	$	(71)	$	4,945	$	(626)	$	13,054	$	(697)
Held to maturity:
Residential mortgage-backed securities		3	$	838	$	(2)	$	279	$	(11)	$	1,117	$	(13)
Total temporarily impaired securities		3	$	838	$	(2)	$	279	$	(11)	$	1,117	$	(13)

Gross Realized Gains (Losses) On Securities [Table Text Block]

	For the three months ended March 31,
(In thousands)	2013		2012
Available for sale:
Realized gains	$	230	$	228
Realized losses		(4)		(4)
Total securities available for sale		226		224
Held to maturity:
Realized gains		-		-
Realized losses		-		-
Total securities held to maturity		-		-
Net gains on sales of securities	$	226	$	224

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Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2013

Transactions Under The Company's Stock Option Plans [Table Text Block]

	Shares		Weighted average exercise price		Weighted average remaining contractual life (in years)		Aggregate intrinsic value
Outstanding at December 31, 2012		516,332	$	7.06		5.4	$	327,725
Options granted		25,000		6.02
Options exercised		-		-
Options forfeited		-		-
Options expired		-		-
Outstanding at March 31, 2013		541,332	$	7.01		5.4	$	391,318
Exercisable at March 31, 2013		415,837	$	7.21		4.3	$	363,559

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

	For the three months ended March 31,
	2013			2012
Number of options granted		25,000			N/A
Weighted average exercise price	$	6.02		$	N/A
Weighted average fair value of options	$	2.91		$	N/A
Expected life in years (1)		5.11			N/A
Expected volatility (2)		52.81	%		N/A	%
Risk-free interest rate (3)		0.77	%		N/A	%
Dividend yield (4)		-	%		N/A	%

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

	For the three months ended March 31,
	2013		2012
Compensation expense	$	35,020	$	40,215
Income tax benefit		13,987		14,319

Information About Options Exercised [Table Text Block]

Upon exercise, the Company issues shares from its authorized but unissued common stock to satisfy the options.  The following table presents information about options exercised during three months ended March 31, 2013 and 2012:

	For the three months ended March 31,
	2013		2012
Number of options exercised		N/A		3,841
Total intrinsic value of options exercised	$	N/A	$	6,055
Cash received from options exercised		N/A		21,410
Tax deduction realized from options exercised		N/A		513

Information About Stock Options Outstanding [Table Text Block]

The following table summarizes information about stock options outstanding and exercisable at March 31, 2013:

		Options outstanding						Options exercisable
Range of exercise prices		Options outstanding		Weighted average remaining contractual life (in years)		Weighted average exercise price		Options exercisable		Weighted average exercise price
$	0.00 - 4.00		119,750		6.1	$	3.87		119,750	$	3.87
	4.01 - 8.00		256,675		7.4		6.47		131,180		6.59
	8.01 - 12.00		120,256		1.0		9.22		120,256		9.22
	12.01 - 16.00		44,651		3.8		12.62		44,651		12.62
	Total		541,332		5.4	$	7.01		415,837	$	7.21

Restricted Stock Grants [TableTextBlock]

Restricted stock awards granted during the three months ended March 31, 2013 and 2012 were as follows:

	For the three months ended March 31,
	2013		2012
Number of shares granted		14,000		N/A
Average grant date fair value	$	6.02	$	N/A

Restricted Stock [Member]

Transactions Under The Company's Stock Option Plans [Table Text Block]

	Shares		Average grant date fair value
Nonvested restricted stock at December 31, 2012		90,975	$	6.10
Granted		14,000		6.02
Vested		-		-
Forfeited		-		-
Nonvested restricted stock at March 31, 2013		104,975	$	6.09

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

	For the three months ended March 31,
	2013		2012
Compensation expense	$	47,935	$	43,358

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Loans

3 Months Ended

Mar. 31, 2013

Loans [Abstract]

Loans

Note 8.  Loans

The following table sets forth the classification of loans by class, including unearned fees, deferred costs and excluding the allowance for loan losses as of March 31, 2013 and December 31, 2012:

(In thousands)	March 31, 2013		December 31, 2012
SBA loans held to maturity	$	56,868	$	58,593
SBA 504 loans		39,784		41,438
Commercial loans
Commercial other		27,787		24,043
Commercial real estate		270,097		264,439
Commercial real estate construction		12,765		13,082
Residential mortgage loans
Residential mortgages		129,570		125,232
Purchased residential mortgages		6,775		6,862
Consumer loans
Home equity		44,064		45,152
Consumer other		2,305		1,258
Total loans held for investment	$	590,015	$	580,099
SBA loans held for sale		6,556		6,937
Total loans	$	596,571	$	587,036

Loans are made to individuals as well as commercial entities. Specific loan terms vary as to interest rate, repayment, and collateral requirements based on the type of loan requested and the credit worthiness of the prospective borrower. Credit risk, excluding SBA loans, tends to be geographically concentrated in that a majority of the loan customers are located in the markets serviced by the Bank. As a preferred SBA lender, a portion of the SBA portfolio is to borrowers outside the Company’s lending area. However, during late 2008, the Company withdrew from SBA lending outside of its primary trade area, but continues to offer SBA loan products as an additional credit product within its primary trade area. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market such as geographic location and/or property type. A description of the Company's different loan segments follows:

SBA Loans: SBA 7(a) loans, on which the SBA has historically provided guarantees of up to 90 percent of the principal balance, are considered a higher risk loan product for the Company than its other loan products. The guaranteed portion of the Company’s SBA loans is generally sold in the secondary market with the nonguaranteed portion held in the portfolio as a loan held for investment. SBA loans are for the purpose of providing working capital, financing the purchase of equipment, inventory or commercial real estate and for other business purposes. Loans are guaranteed by the businesses' major owners. SBA loans are made based primarily on the historical and projected cash flow of the business and secondarily on the underlying collateral provided.

SBA 504 Loans: The SBA 504 program consists of real estate backed commercial mortgages where the Company has the first mortgage and the SBA has the second mortgage on the property. SBA 504 loans are made based primarily on the historical and projected cash flow of the business and secondarily on the underlying collateral provided. Generally, the Company has a 50 percent loan to value ratio on SBA 504 program loans at origination.

Commercial Loans: Commercial credit is extended primarily to middle market and small business customers. Commercial loans are generally made in the Company’s market place for the purpose of providing working capital, financing the purchase of equipment, inventory or commercial real estate and for other business purposes. Loans will generally be guaranteed in full or for a meaningful amount by the businesses' major owners. Commercial loans are made based primarily on the historical and projected cash flow of the business and secondarily on the underlying collateral provided.

ResidentialMortgage and Consumer Loans: The Company originates mortgage and consumer loans including principally residential real estate and home equity lines and loans. Each loan type is evaluated on debt to income, type of collateral and loan to collateral value, credit history and Company relationship with the borrower.

Inherent in the lending function is credit risk, which is the possibility a borrower may not perform in accordance with the contractual terms of their loan. A borrower’s inability to pay their obligations according to the contractual terms can create the risk of past due loans and, ultimately, credit losses, especially on collateral deficient loans. The Company minimizes its credit risk by loan diversification and adhering to credit administration policies and procedures. Due diligence on loans begins when we initiate contact regarding a loan with a borrower. Documentation, including a borrower’s credit history, materials establishing the value and liquidity of potential collateral, the purpose of the loan, the source of funds for repayment of the loan, and other factors, are analyzed before a loan is submitted for approval. The loan portfolio is then subject to on-going internal reviews for credit quality, as well as independent credit reviews by an outside firm.

The Company's extension of credit is governed by the Credit Risk Policy which was established to control the quality of the Company's loans. These policies and procedures are reviewed and approved by the Board of Directors on a regular basis.

Credit Ratings

For SBA 7(a), SBA 504 and commercial loans, management uses internally assigned risk ratings as the best indicator of credit quality. A loan’s internal risk rating is updated at least annually and more frequently if circumstances warrant a change in risk rating. The Company uses a 1 through 10 loan grading system that follows regulatory accepted definitions.

Pass: Risk ratings of 1 through 6 are used for loans that are performing, as they meet, and are expected to continue to meet, all of the terms and conditions set forth in the original loan documentation, and are generally current on principal and interest payments. These performing loans are termed “Pass”.

Special Mention: Criticized loans are assigned a risk rating of 7 and termed “Special Mention”, as the borrowers exhibit potential credit weaknesses or downward trends deserving management’s close attention. If not checked or corrected, these trends will weaken the Bank’s collateral and position. While potentially weak, these borrowers are currently marginally acceptable and no loss of interest or principal is anticipated. As a result, special mention assets do not expose an institution to sufficient risk to warrant adverse classification. Included in “Special Mention” could be turnaround situations, such as borrowers with deteriorating trends beyond one year, borrowers in startup or deteriorating industries, or borrowers with a poor market share in an average industry. "Special Mention" loans may include an element of asset quality, financial flexibility, or below average management. Management and ownership may have limited depth or experience. Regulatory agencies have agreed on a consistent definition of “Special Mention” as an asset with potential weaknesses which, if left uncorrected, may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. This definition is intended to ensure that the “Special Mention” category is not used to identify assets that have as their sole weakness credit data exceptions or collateral documentation exceptions that are not material to the repayment of the asset.

Substandard: Classified loans are assigned a risk rating of an 8 or 9, depending upon the prospect for collection, and deemed “Substandard”. A risk rating of 8 is used for borrowers with well-defined weaknesses that jeopardize the orderly liquidation of debt. The loan is inadequately protected by the current paying capacity of the obligor or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy, although no loss of principal is envisioned. There is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified “Substandard”.

A risk rating of 9 is used for borrowers that have all the weaknesses inherent in a loan with a risk rating of 8, with the added characteristic that the weaknesses make collection of debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Serious problems exist to the point where partial loss of principal is likely. The possibility of loss is extremely high, but because of certain important, reasonably specific pending factors that may work to strengthen the assets, the loans’ classification as estimated losses is deferred until a more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures; capital injection; perfecting liens on additional collateral; and refinancing plans. Partial charge-offs are likely.

Loss: Once a borrower is deemed incapable of repayment of unsecured debt, the risk rating becomes a 10, the loan is termed a “Loss”, and charged-off immediately. Loans to such borrowers are considered uncollectible and of such little value that continuance as active assets of the Bank is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off these basically worthless assets even though partial recovery may be affected in the future.

For residential mortgage and consumer loans, management uses performing versus nonperforming as the best indicator of credit quality. Nonperforming loans consist of loans that are not accruing interest (nonaccrual loans) as a result of principal or interest being in default for a period of 90 days or more or when the ability to collect principal and interest according to the contractual terms is in doubt. These credit quality indicators are updated on an ongoing basis, as a loan is placed on nonaccrual status as soon as management believes there is sufficient doubt as to the ultimate ability to collect interest on a loan.

The tables below detail the Company’s loan portfolio by class according to their credit quality indicators discussed in the paragraphs above as of March 31, 2013:

	March 31, 2013
	SBA, SBA 504 & Commercial loans - Internal risk ratings
(In thousands)	Pass		Special mention		Substandard		Total
SBA loans held to maturity	$	45,017	$	3,833	$	8,018	$	56,868
SBA 504 loans		28,401		4,028		7,355		39,784
Commercial loans
Commercial other		23,923		1,713		2,151		27,787
Commercial real estate		237,280		28,487		4,330		270,097
Commercial real estate construction		12,563		-		202		12,765
Total commercial loans		273,766		30,200		6,683		310,649
Total SBA, SBA 504 and commercial loans	$	347,184	$	38,061	$	22,056	$	407,301
	Residential mortgage & Consumer loans - Performing/Nonperforming
(In thousands)			Performing		Nonperforming		Total
Residential mortgage loans
Residential mortgages			$	126,745	$	2,825	$	129,570
Purchased residential mortgages				5,046		1,729		6,775
Total residential mortgage loans				131,791		4,554		136,345
Consumer loans
Home equity				43,762		302		44,064
Consumer other				2,305		-		2,305
Total consumer loans				46,067		302		46,369
Total residential mortgage and consumer loans			$	177,858	$	4,856	$	182,714

The tables below detail the Company’s loan portfolio by class according to their credit quality indicators discussed in the paragraphs above as of December 31, 2012: 

	December 31, 2012
	SBA, SBA 504 & Commercial loans - Internal risk ratings
(In thousands)	Pass		Special mention		Substandard		Total
SBA loans held to maturity	$	45,680	$	4,376	$	8,537	$	58,593
SBA 504 loans		28,726		5,860		6,852		41,438
Commercial loans
Commercial other		20,187		1,669		2,187		24,043
Commercial real estate		229,516		30,733		4,190		264,439
Commercial real estate construction		12,880		202		-		13,082
Total commercial loans		262,583		32,604		6,377		301,564
Total SBA, SBA 504 and commercial loans	$	336,989	$	42,840	$	21,766	$	401,595
	Residential mortgage & Consumer loans - Performing/Nonperforming
(In thousands)			Performing		Nonperforming		Total
Residential mortgage loans
Residential mortgages			$	122,711	$	2,521	$	125,232
Purchased residential mortgages				3,872		2,990		6,862
Total residential mortgage loans				126,583		5,511		132,094
Consumer loans
Home equity				44,844		308		45,152
Consumer other				1,249		9		1,258
Total consumer loans				46,093		317		46,410
Total residential mortgage and consumer loans			$	172,676	$	5,828	$	178,504

Nonperforming and Past Due Loans

Nonperforming loans consist of loans that are not accruing interest (nonaccrual loans) as a result of principal or interest being in default for a period of 90 days or more or when the ability to collect principal and interest according to the contractual terms is in doubt. Loans past due 90 days or more and still accruing interest are not included in nonperforming loans and generally represent loans that are well collateralized and in a continuing process expected to result in repayment or restoration to current status. The risk of loss is difficult to quantify and is subject to fluctuations in collateral values, general economic conditions and other factors. The current state of the economy and the downturn in the real estate market has resulted in increased loan delinquencies and defaults. In some cases, these factors have also resulted in significant impairment to the value of loan collateral. The Company values its collateral through the use of appraisals, broker price opinions, and knowledge of its local market. In response to the credit risk in its portfolio, the Company has increased staffing in its credit monitoring department and increased efforts in the collection and analysis of borrowers’ financial statements and tax returns.

The following tables set forth an aging analysis of past due and nonaccrual loans as of March 31, 2013 and December 31, 2012:

	March 31, 2013
(In thousands)	30-59 days past due		60-89 days past due		90+ days and still accruing		Nonaccrual (1)		Total past due		Current		Total loans
SBA loans held to maturity	$	388	$	-	$	212	$	4,441	$	5,041	$	51,827	$	56,868
SBA 504 loans		4,511		-		415		1,235		6,161		33,623		39,784
Commercial loans
Commercial other		20		-		-		1,091		1,111		26,676		27,787
Commercial real estate		651		52		-		3,079		3,782		266,315		270,097
Commercial real estate construction		-		-		-		202		202		12,563		12,765
Residential mortgage loans
Residential mortgages		2,132		-		-		2,825		4,957		124,613		129,570
Purchased residential mortgages		71		17		4		1,729		1,821		4,954		6,775
Consumer loans
Home equity		318		725		-		302		1,345		42,719		44,064
Consumer other		1		-		1		-		2		2,303		2,305
Total loans held for investment	$	8,092	$	794	$	632	$	14,904	$	24,422	$	565,593	$	590,015
SBA loans held for sale		-		-		-		-		-		6,556		6,556
Total loans	$	8,092	$	794	$	632	$	14,904	$	24,422	$	572,149	$	596,571

(1) At March 31, 2013, nonaccrual loans included $1.1 million of troubled debt restructurings ("TDRs") and $1.9 million of loans guaranteed by the SBA.  The remaining $15.1 million of TDRs are in accrual status because they are performing in accordance with their restructured terms.

	December 31, 2012
(In thousands)	30-59 days past due		60-89 days past due		90+ days and still accruing		Nonaccrual (1)		Total past due		Current		Total loans
SBA loans held to maturity	$	1,912	$	296	$	-	$	4,633	$	6,841	$	51,752	$	58,593
SBA 504 loans		5,037		-		-		2,562		7,599		33,839		41,438
Commercial loans
Commercial other		-		-		109		1,122		1,231		22,812		24,043
Commercial real estate		3,763		-		-		3,323		7,086		257,353		264,439
Commercial real estate construction		-		202		-		-		202		12,880		13,082
Residential mortgage loans
Residential mortgages		2,651		1,878		-		2,521		7,050		118,182		125,232
Purchased residential mortgages		134		78		-		2,990		3,202		3,660		6,862
Consumer loans
Home equity		833		-		-		308		1,141		44,011		45,152
Consumer other		-		-		-		9		9		1,249		1,258
Total loans held for investment	$	14,330	$	2,454	$	109	$	17,468	$	34,361	$	545,738	$	580,099
SBA loans held for sale		-		-		-		-		-		6,937		6,937
Total loans	$	14,330	$	2,454	$	109	$	17,468	$	34,361	$	552,675	$	587,036

(1) At December 31, 2012, nonaccrual loans included $1.1 million of TDRs and $1.8 million of loans guaranteed by the SBA.  The remaining $13.6 million of TDRs are in accrual status because they are performing in accordance with their restructured terms.

Impaired Loans

The Company has defined impaired loans to be all nonperforming loans and troubled debt restructurings.  Management considers a loan impaired when, based on current information and events, it is determined that the Company will not be able to collect all amounts due according to the loan contract.

The following table provides detail on the Company’s impaired loans with the associated allowance amount, if applicable, as of March 31, 2013:

	March 31, 2013
(In thousands)	Unpaid principal balance		Recorded investment		Specific reserves
With no related allowance:
SBA loans held to maturity (1)	$	1,009	$	709	$	-
SBA 504 loans		4,654		4,404		-
Commercial loans
Commercial other		2,026		2,027		-
Commercial real estate		5,317		5,142		-
Total commercial loans		7,343		7,169		-
Total impaired loans with no related allowance		13,006		12,282		-
With an allowance:
SBA loans held to maturity (1)		3,635		2,789		1,050
SBA 504 loans		1,297		1,097		206
Commercial loans
Commercial other		26		13		13
Commercial real estate		6,952		6,868		328
Commercial real estate construction		202		202		82
Total commercial loans		7,180		7,083		423
Total impaired loans with a related allowance		12,112		10,969		1,679
Total individually evaluated impaired loans:
SBA loans held to maturity (1)		4,644		3,498		1,050
SBA 504 loans		5,951		5,501		206
Commercial loans
Commercial other		2,052		2,040		13
Commercial real estate		12,269		12,010		328
Commercial real estate construction		202		202		82
Total commercial loans		14,523		14,252		423
Total individually evaluated impaired loans	$	25,118	$	23,251	$	1,679

(1) Balances are reduced by amount guaranteed by the SBA of $1.9 million at March 31, 2013.

The following table provides detail on the Company’s impaired loans with the associated allowance amount, if applicable, as of December 31, 2012:

	December 31, 2012
(In thousands)	Unpaid principal balance		Recorded investment		Specific reserves
With no related allowance:
SBA loans held to maturity (1)	$	1,352	$	866	$	-
SBA 504 loans		5,812		5,555		-
Commercial loans
Commercial other		2,032		2,033		-
Commercial real estate		5,220		4,752		-
Total commercial loans		7,252		6,785		-
Total impaired loans with no related allowance		14,416		13,206		-
With an allowance:
SBA loans held to maturity (1)		3,355		2,846		1,159
SBA 504 loans		1,297		1,297		217
Commercial loans
Commercial other		126		38		38
Commercial real estate		6,014		5,979		587
Total commercial loans		6,140		6,017		625
Total impaired loans with a related allowance		10,792		10,160		2,001
Total individually evaluated impaired loans:
SBA loans held to maturity (1)		4,707		3,712		1,159
SBA 504 loans		7,109		6,852		217
Commercial loans
Commercial other		2,158		2,071		38
Commercial real estate		11,234		10,731		587
Total commercial loans		13,392		12,802		625
Total individually evaluated impaired loans	$	25,208	$	23,366	$	2,001

(1) Balances are reduced by amount guaranteed by the SBA of $1.8 million at December 31, 2012.

The following table presents the average recorded investments in impaired loans and the related amount of interest recognized during the time period in which the loans were impaired for the three months ended March 31, 2013 and 2012.  The average balances are calculated based on the month-end balances of impaired loans.  When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is on nonaccrual status, all payments are applied to principal under the cost recovery method, therefore no interest income is recognized.  The interestincome recognized on impaired loans noted below represents primarily accruing troubled debt restructurings and nominalamounts of income recognized on a cash basis for well-collateralized impaired loans.

	For the three months ended March 31,
	2013				2012
(In thousands)	Average recorded investment		Interest income recognized on impaired loans		Average recorded investment		Interest income recognized on impaired loans
SBA loans held to maturity (1)	$	3,542	$	57	$	5,754	$	56
SBA 504 loans		7,485		88		6,463		70
Commercial loans
Commercial other		2,042		61		2,769		21
Commercial real estate		11,026		83		18,360		130
Commercial real estate construction		135		-		533		-
Residential mortgage loans
Residential mortgages		2,757		-		1,650		-
Residential construction		-		-		2,169		-
Purchased residential mortgages		2,149		-		2,006		-
Consumer loans
Home equity		338		8		285		-
Consumer other		3		-		11		-
Total	$	29,477	$	297	$	40,000	$	277

(1) Balances are reduced by the average amount guaranteed by the Small Business Administration of $1.7 million and $639 thousand for the three months ended March 31, 2013 and 2012, respectively.

Troubled Debt Restructurings

The Company's loan portfolio also includes certain loans that have been modified in a troubled debt restructuring (“TDR”). TDRs occur when a creditor, for economic or legal reasons related to a debtor’s financial condition, grants a concession to the debtor that it would not otherwise consider, unless it results in a delay in payment that is insignificant. These concessions typically include reductions in interest rate, extending the maturity of a loan, or a combination of both. When the Company modifies a loan, management evaluates for any possible impairment using either the discounted cash flows method, where the value of the modified loan is based on the present value of expected cash flows, discounted at the contractual interest rate of the original loan agreement, or by using the fair value of the collateral less selling costs if the loan is collateral-dependent. If management determines that the value of the modified loan is less than the recorded investment in the loan, impairment is recognized by segment or class of loan, as applicable, through an allowance estimate or charge-off to the allowance. This process is used, regardless of loan type, and for loans modified as TDRs that subsequently default on their modified terms.

TDRs of $16.2million and $14.7 million are included in the impaired loan numbers listed above as of March 31, 2013 and December 31, 2012, respectively.  Specific reserves for these TDRs were $490 thousand and $659 thousand as of March 31, 2013 and December 31, 2012, respectively.  At March 31, 2013, $1.1 million of TDRs were in nonaccrual status, consistent with December 31, 2012.  The remaining TDRs are in accrual status since they continue to perform in accordance with their restructured terms.  There are no commitments to lend additional funds on these loans. 

The following table details loans modified during the three months ended March 31, 2013 and 2012, including the number of modifications, the recorded investment at the time of the modification and the quarter-to-date impact to interest income as a result of the modification.  

	For the three months ended March 31,
	2013						2012
(In thousands, except number of contracts)	Number of contracts		Recorded investment at time of modification		Impact of interest rate change on income		Number of contracts		Recorded investment at time of modification		Impact of interest rate change on income
Commercial loans
Commercial other		-	$	-	$	-		3	$	1,291	$	-
Commercial real estate		1		2,684		-		3		1,856		-
Total		1	$	2,684	$	-		6	$	3,147	$	-

There were no loans modified as a TDR within the previous 12 months where a concession was made and the loan subsequently defaulted at some point during the three months ended March 31, 2013 or 2012.  In this case, subsequent default is defined as 90 days past due or transferred to nonaccrual status. 

To date, the Company’s TDRs consisted of interest rate reductions, interest only periods and maturity extensions.  There has been no principal forgiveness.   The following tables show the types of modifications done during the three months ended March 31, 2013 and 2012, with the respective loan balances as of those period ends:

	For the three months ended March 31, 2013
(In thousands)	Commercial real estate		Total
Type of modification:
Interest only with reduced interest rate	$	2,684	$	2,684
Total TDRs	$	2,684	$	2,684

	For the three months ended March 31, 2012
(In thousands)	Commercial other		Commercial real estate		Total
Type of modification:
Interest only	$	1,291	$	1,856	$	3,147
Total TDRs	$	1,291	$	1,856	$	3,147

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Allowance for Loan Losses and Reserve for Unfunded Loan Commitments (Loans And Their Related Allowance For Loan Losses, By Portfolio Segment ) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012	Dec. 31, 2011
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Allowance	$ 14,345	$ 14,758	$ 16,339	$ 16,348
Total Loans	596,571	587,036
Other Commitment	117	87
SBA held to maturity [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment	1,050	1,159
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment	2,358	2,219
Loans and Leases Receivable, Allowance	3,408	3,378	3,639	4,088
Financing Receivable, Individually Evaluated for Impairment	3,498	3,712
Financing Receivable, Collectively Evaluated for Impairment	53,370	54,881
Total Loans	56,868	58,593
SBA 504 loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment	206	217
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment	1,090	1,095
Loans and Leases Receivable, Allowance	1,296	1,312	1,285	1,423
Financing Receivable, Individually Evaluated for Impairment	5,501	6,852
Financing Receivable, Collectively Evaluated for Impairment	34,283	34,586
Total Loans	39,784	41,438
Total Commercial Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment	423	625
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment	6,456	6,466
Loans and Leases Receivable, Allowance	6,879	7,091	8,361	8,129
Financing Receivable, Individually Evaluated for Impairment	14,252	12,802
Financing Receivable, Collectively Evaluated for Impairment	296,397	288,762
Total Loans	310,649	301,564
Total residential mortgage loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment	1,877	1,769
Loans and Leases Receivable, Allowance	1,877	1,769	1,770	1,703
Financing Receivable, Collectively Evaluated for Impairment	136,345	132,094
Total Loans	136,345	132,094
Total consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment	556	524
Loans and Leases Receivable, Allowance	556	524	527	536
Financing Receivable, Collectively Evaluated for Impairment	46,369	46,410
Total Loans	46,369	46,410
Unallocated Financing Receivables [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment	329	684
Loans and Leases Receivable, Allowance	329	684	757	469
Loans Held for Investment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment	1,679	2,001
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment	12,666	12,757
Loans and Leases Receivable, Allowance	14,345	14,758
Financing Receivable, Individually Evaluated for Impairment	23,251	23,366
Financing Receivable, Collectively Evaluated for Impairment	566,764	556,733
Total Loans	$ 590,015	$ 580,099

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Fair Value

3 Months Ended

Mar. 31, 2013

Fair Value [Abstract]

Fair Value

NOTE 6.  Fair Value

Fair Value Measurement

The Company follows FASB ASC Topic 820, “Fair Value Measurement and Disclosures,” which requires additional disclosures about the Company’s assets and liabilities that are measured at fair value.  Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  In determining fair value, the Company uses various methods including market, income and cost approaches.  Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique.  These inputs can be readily observable, market corroborated, or generally unobservable inputs.  The Company utilizes techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.  The fair value hierarchy ranks the quality and reliability of the information used to determine fair values.  Financial assets and liabilities carried at fair value will be classified and disclosed as follows:

Level 1 Inputs

· Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

· Generally, this includes debt and equity securities and derivative contracts that are traded in an active exchange market (i.e. New York Stock Exchange), as well as certain U.S. Treasury, U.S. Government and sponsored entity agency mortgage-backed securities that are highly liquid and are actively traded in over-the-counter markets.

Level 2 Inputs

· Quoted prices for similar assets or liabilities in active markets.

· Quoted prices for identical or similar assets or liabilities in inactive markets.

· Inputs other than quoted prices that are observable, either directly or indirectly, for the term of the asset or liability (i.e., interest rates, yield curves, credit risks, prepayment speeds or volatilities) or “market corroborated inputs.”

· Generally, this includes U.S. Government and sponsored entity mortgage-backed securities, corporate debt securities and derivative contracts.

Level 3 Inputs

· Prices or valuation techniques that require inputs that are both unobservable (i.e. supported by little or no market activity) and that are significant to the fair value of the assets or liabilities.

· These assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Fair Value on a Recurring Basis

The following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis:

Securities Available for Sale

The fair value of available for sale ("AFS") securities is the market value based on quoted market prices, when available, or market prices provided by recognized broker dealers (Level 1).  If listed prices or quotes are not available, fair value is based upon quoted market prices for similar or identical assets or other observable inputs (Level 2) or externally developed models that use unobservable inputs due to limited or no market activity of the instrument (Level 3).

As of March 31, 2013, the fair value of the Company's AFS securities portfolio was $91.1 million.  Approximately 45 percent of the portfolio was made up of residential mortgage-backed securities, which had a fair value of $41.0 million at March 31, 2013.  Approximately $39.5 million of the residential mortgage-backed securities are guaranteed by the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC").  The underlying loans for these securities are residential mortgages that are geographically dispersed throughout the United States. 

All of the Company’s AFS securities, excluding commercial mortgage-backed securities, were classified as Level 2 assets at March 31, 2013.  The valuation of AFS securities using Level 2 inputs was primarily determined using the market approach, which uses quoted prices for similar assets or liabilities in active markets and all other relevant information.  It includes model pricing, defined as valuing securities based upon their relationship with other benchmark securities. 

For certain securities, the inputs used by either dealer market participants or an independent pricing service, may be derived from unobservable market information (Level 3 inputs).  In these instances, management evaluates the appropriateness and quality of the assumptions and the resulting prices.  In addition, management reviews the volume and level of activity for all AFS securities and attempts to identify transactions which may not be orderly or reflective of a significant level of activity and volume.  For securities meeting these criteria, the quoted prices received from either market participants or an independent pricing service may be adjusted, as necessary, to estimate fair value and this results in fair values based on Level 3 inputs.  In determining fair value, the Company utilizes unobservable inputs which reflect its own assumptions about the inputs that market participants would use in pricing each security.  In developing its assertion of market participant assumptions, the Company utilizes the best information that is both reasonable and available without undue cost and effort.

In calculating the fair value for AFS securities under Level 3, management prepared present value cash flow models for certain private label commercial mortgage-backed securities. The cash flows for the commercial mortgage-backed securities incorporated the expected cash flow of each security adjusted for default rates, loss severities and prepayments of the individual loans collateralizing the security.  The following table presents quantitative information about Level 3 inputs used to measure the fair value of commercial mortgage-backed securities at March 31, 2013:

March 31, 2013
Valuation Technique	Unobservable Input	Range		Weighted Average
Discounted Cash Flow	Prepayment rate	8 through 15	%	10.0	%
	Default rate	10 through 15	%	12.5	%
	Loss severity	10 through 25	%	18.0	%

Significant increases or decreases in any of the unobservable inputs in the table above in isolation would result in a significantly lower or higher fair value measurement of the securities.  Generally, a change in the assumption used for the default rate is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates.

For the Level 3 available for sale private label commercial mortgage-backed securities, cash flow assumptions incorporate independent third party market participant data based on vintage year for each security.  The discount rate utilized in determining the present value of cash flows for the commercial mortgage-backed securities was arrived at by combining the yield on orderly transactions for similar maturity government sponsored mortgage-backed securities with (i) the historical average risk premium of similar structured private label securities, (ii) a risk premium reflecting current market conditions, including liquidity risk and (iii) if applicable, a forecasted loss premium derived from the expected cash flows of each security.  The estimated cash flows for each private label commercial mortgage-backed security are then discounted at the aforementioned effective rate to determine the fair value.  The quoted prices received from either market participants or independent pricing services are weighted with the internal price estimate to determine the fair value of each instrument.

There were no changes in the inputs or methodologies used to determine fair value during the period ended March 31, 2013, as compared to the periods ended December 31, 2012 and March 31, 2012.  

The tables below present the balances of assets and liabilities measured at fair value on a recurring basis as of March 31, 2013 and December 31, 2012:

	March 31, 2013
(In thousands)	Level 1		Level 2		Level 3		Total
Securities available for sale:
U.S. Government sponsored entities	$	-	$	6,995	$	-	$	6,995
State and political subdivisions		-		20,906		-		20,906
Residential mortgage-backed securities		-		40,998		-		40,998
Commercial mortgage-backed securities		-		-		3,681		3,681
Corporate and other securities		-		18,487		-		18,487
Total securities available for sale	$	-	$	87,386	$	3,681	$	91,067
	December 31, 2012
(In thousands)	Level 1		Level 2		Level 3		Total
Securities available for sale:
U.S. Government sponsored entities	$	-	$	2,568	$	-	$	2,568
State and political subdivisions		-		15,303		-		15,303
Residential mortgage-backed securities		-		45,545		-		45,545
Commercial mortgage-backed securities		-		-		4,463		4,463
Corporate and other securities		-		21,659		-		21,659
Total securities available for sale	$	-	$	85,075	$	4,463	$	89,538

The following table summarizes changes in Level 3 assets during the three months ended March 31, 2013 and 2012, consisting of commercial mortgage-backed available for sale securities, measured at fair value on a recurring basis:

	For the three months ended March 31,
(In thousands)	2013		2012
Commercial mortgage-backed securities:
Balance, beginning of period	$	4,463	$	-
Payoffs		(505)		-
Principal paydowns		(244)		-
Total net losses included in:
Other comprehensive income		(33)		-
Balance, end of period	$	3,681	$	-

There were no gains or losses (realized or unrealized) including in earnings for assets and liabilities held at March 31, 2013 or 2012.

Fair Value on a Nonrecurring Basis

Certain assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).  The following is a description of the valuation methodologies used for instruments measured at fair value on a nonrecurring basis:

Appraisal Policy

All appraisals must be performed in accordance with the Uniform Standards of Professional Appraisal Practice ("USPAP").  Appraisals are certified to the Company and performed by appraisers on the Company’s approved list of appraisers.  Evaluations are completed by a person independent of Company management.  The content of the appraisal depends on the complexity of the property.  Appraisals are completed on a “retail value” and an “as is value”.

The Company requires current real estate appraisals on all loans that become OREO or in-substance foreclosure, loans that are classified substandard, doubtful or loss, or loans that are over $100,000 and nonperforming.  Prior to each balance sheet date, the Company values impaired collateral-dependent loans and OREO based upon a third party appraisal, broker's price opinion, drive by appraisal, automated valuation model, updated market evaluation, or a combination of these methods.  The amount is discounted for the decline in market real estate values (for original appraisals), for any known damage or repair costs, and for selling and closing costs.  The amount of the discount ranges from 10 to 25 percent and is dependent upon the method used to determine the original value.  The original appraisal is generally used when a loan is first determined to be impaired.  When applying the discount, the Company takes into consideration when the appraisal was performed, the collateral’s location, the type of collateral, any known damage to the property and the type of business. Subsequent to entering impaired status and the Company determining that there is a collateral shortfall, the Company will generally, depending on the type of collateral, order a third party appraisal, broker's price opinion, automated valuation model or updated market evaluation.  Subsequent to receiving the third party results, the Company will discount the value 8to 10 percent for selling and closing costs.

Other Real Estate Owned ("OREO")

The fair value of OREO is determined using appraisals, which may be discounted based on management’s review and changes in market conditions (Level 3 Inputs).  

Impaired Collateral-Dependent Loans

The fair value of impaired collateral-dependent loans is derived in accordance with FASB ASC Topic 310, “Receivables.”  Fair value is determined based on the loan’s observable market price or the fair value of the collateral.  Partially charged-off loans are measured for impairment based upon an appraisal for collateral-dependant loans.  When an updated appraisal is received for a nonperforming loan, the value on the appraisal is discounted in the manner discussed above. If there is a deficiency in the value after the Company applies these discounts, management applies a specific reserve and the loan remains in nonaccrual status.  The receipt of an updated appraisal would not qualify as a reason to put a loan back into accruing status. The Company removes loans from nonaccrual status when the borrower makes six months of contractual payments and demonstrates the ability to service the debt going forward.  Charge-offs are determined based upon the loss that management believes the Company will incur after evaluating collateral for impairment based upon the valuation methods described above and the ability of the borrower to pay any deficiency.

The valuation allowance for impaired loans is included in the allowance for loan losses in the consolidated balance sheets.  At March 31, 2013, the valuation allowance for impaired loans was $1.7 million, a decrease of $322 thousand from $2.0 million at December 31, 2012.

The following tables present the assets and liabilities carried on the balance sheet by caption and by level within the hierarchy (as described above) as of March 31, 2013 and March 31, 2012 and the fair value gains (losses) recognized during the three months ended March 31, 2013 and 2012:

	Fair value at March 31, 2013								Gains (losses) from fair value changes for the
(In thousands)	Level 1		Level 2		Level 3		Total		three months ended March 31, 2013
Financial assets:
OREO	$	-	$	-	$	300	$	300	$	(70)
Impaired collateral-dependent loans		-		-		9,290		9,290		322
	Fair value at March 31, 2012								Gains (losses) from fair value changes for the
(In thousands)	Level 1		Level 2		Level 3		Total		three months ended March 31, 2012
Financial assets:
OREO	$	-	$	-	$	256	$	256	$	(116)
Impaired collateral-dependent loans		-		-		11,851		11,851		568

Fair Value of Financial Instruments

FASB ASC Topic 825, “Financial Instruments,” requires the disclosure of the estimated fair value of certain financial instruments, including those financial instruments for which the Company did not elect the fair value option. These estimated fair values as of March 31, 2013 and December 31, 2012 have been determined using available market information and appropriate valuation methodologies.  Considerable judgment is required to interpret market data to develop estimates of fair value.  The estimates presented are not necessarily indicative of amounts the Company could realize in a current market exchange.  The use of alternative market assumptions and estimation methodologies could have had a material effect on these estimates of fair value.  The methodology for estimating the fair value of financial assets and liabilities that are measured on a recurring or nonrecurring basis are discussed above.  The following methods and assumptions were used to estimate the fair value of other financial instruments for which it is practicable to estimate that value:

Cash and Cash Equivalents

For these short-term instruments, the carrying value is a reasonable estimate of fair value.

Securities Held to Maturity

The fair value of held to maturity ("HTM") securities is based upon quoted market prices for similar or identical assets or other observable inputs (Level 2) or externally developed models that use unobservable inputs due to limited or no market activity of the instrument (Level 3).

SBA Loans Held for Sale

The fair value of SBA loans held for sale is estimated by using a market approach that includes significant other observable inputs.

Loans

The fair value of loans is estimated by discounting the future cash flows using current market rates that reflect the interest rate risk inherent in the loan, except for previously discussed impaired loans.

Federal Home Loan Bank Stock

Federal Home Loan Bank stock is carried at cost.  Carrying value approximates fair value based on the redemption provisions of the issues.

SBA Servicing Assets

SBA servicing assets do not trade in an active, open market with readily observable prices.  The Company estimates the fair value of SBA servicing assets using discounted cash flow models incorporating numerous assumptions from the perspective of a market participant including market discount rates and prepayment speeds.

Accrued Interest

The carrying amounts of accrued interest approximate fair value.

Deposit Liabilities

The fair value of demand deposits and savings accounts is the amount payable on demand at the reporting date (i.e. carrying value).  The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using current market rates.

Borrowed Funds and Subordinated Debentures

The fair value of borrowings is estimated by discounting the projected future cash flows using current market rates.

Standby Letters of Credit

At March 31, 2013, the Bank had standby letters of credit outstanding of $1.6 million, consistent with December 31, 2012.  The fair value of these commitments is nominal.

The table below presents the carrying amount and estimated fair values of the Company’s financial instruments not previously presented as of March 31, 2013 and December 31, 2012:

			March 31, 2013				December 31, 2012
(In thousands)	Fair value level		Carrying amount		Estimated fair value		Carrying amount		Estimated fair value
Financial assets:
Cash and cash equivalents		Level 1	$	79,976	$	79,976	$	94,192	$	94,192
Securities held to maturity (1)		Level 2		28,267		28,859		21,515		22,741
SBA loans held for sale		Level 2		6,556		7,293		6,937		7,582
Loans, net of allowance for loan losses (2)		Level 2		575,670		574,118		565,341		564,528
Federal Home Loan Bank stock		Level 2		3,989		3,989		3,989		3,989
SBA servicing assets		Level 3		388		388		396		396
Accrued interest receivable		Level 2		3,362		3,362		3,298		3,298
Financial liabilities:
Deposits		Level 2		652,117		653,668		648,760		650,668
Borrowed funds and subordinated debentures		Level 2		90,465		99,571		90,465		100,257
Accrued interest payable		Level 2		438		438		434		434

(1)	Includes held to maturity commercial mortgage-backed securities that are considered Level 3. These securities had book values of $6.8 million and $2.7 million at March 31, 2013 and December 31, 2012, respectively, and market values of $6.8 million and $3.2 million at March 31, 2013 and December 31, 2012, respectively.
(2)	Includes impaired loans that are considered Level 3 and reported separately in the tables under the “Fair Value on a Nonrecurring Basis” heading. Impaired loans, net of specific reserves totaled $9.3 million and $8.2 million at March 31, 2013 and December 31, 2012, respectively.

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Securities

3 Months Ended

Mar. 31, 2013

Securities [Abstract]

Securities

Note 7. Securities

This table provides the major components of securities available for sale (“AFS”) and held to maturity (“HTM”) at amortized cost and estimated fair value at March 31, 2013 and December 31, 2012:

	March 31, 2013								December 31, 2012
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value		Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Available for sale:
U.S. Government sponsored entities	$	6,927	$	72	$	(4)	$	6,995	$	2,482	$	86	$	-	$	2,568
State and political subdivisions		20,557		499		(150)		20,906		14,690		613		-		15,303
Residential mortgage-backed securities		39,669		1,417		(88)		40,998		43,984		1,684		(123)		45,545
Commercial mortgage-backed securities		3,674		10		(3)		3,681		4,423		42		(2)		4,463
Corporate and other securities		18,658		247		(418)		18,487		21,741		490		(572)		21,659
Total securities available for sale	$	89,485	$	2,245	$	(663)	$	91,067	$	87,320	$	2,915	$	(697)	$	89,538
Held to maturity:
U.S. Government sponsored entities	$	6,049	$	1	$	(31)	$	6,019	$	5,050	$	38	$	-	$	5,088
State and political subdivisions		2,744		291		-		3,035		2,746		288		-		3,034
Residential mortgage-backed securities		11,653		345		(11)		11,987		11,048		374		(13)		11,409
Commercial mortgage-backed securities		6,842		107		(106)		6,843		2,671		539		-		3,210
Corporate and other securities		979		-		(4)		975		-		-		-		-
Total securities held to maturity	$	28,267	$	744	$	(152)	$	28,859	$	21,515	$	1,239	$	(13)	$	22,741

This table provides the remaining contractual maturities and yields of securities within the investment portfolios.  The carrying value of securities at March 31, 2013 is distributed by contractual maturity.  Mortgage-backed securities and other securities, which may have principal prepayment provisions, are distributed based on contractual maturity.  Expected maturities will differ materially from contractual maturities as a result of early prepayments and calls.

	Within one year				After one through five years				After five through ten years				After ten years				Total carrying value
(In thousands, except percentages)	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
Available for sale at fair value:
U.S. Government sponsored entities	$	-	-	%	$	1,108	1.17	%	$	1,017	2.13	%	$	4,870	2.09	%	$	6,995	1.95	%
State and political subdivisions		1,504	0.70			841	2.55			13,151	2.92			5,410	2.83			20,906	2.72
Residential mortgage-backed securities		46	3.11			208	4.41			680	4.44			40,064	2.72			40,998	2.76
Commercial mortgage-backed securities		-	-			-	-			-	-			3,681	3.11			3,681	3.11
Corporate and other securities		-	-			1,401	1.80			6,907	3.14			10,179	2.33			18,487	2.59
Total securities available for sale	$	1,550	0.77	%	$	3,558	1.93	%	$	21,755	3.00	%	$	64,204	2.64	%	$	91,067	2.67	%
Held to maturity at cost:
U.S. Government sponsored entities	$	-	-	%	$	-	-	%	$	-	-	%	$	6,049	1.80	%	$	6,049	1.80	%
State and political subdivisions		624	0.75			-	-			-	-			2,120	4.70			2,744	3.80
Residential mortgage-backed securities		48	3.67			871	4.75			610	5.00			10,124	2.05			11,653	2.42
Commercial mortgage-backed securities		-	-			-	-			-	-			6,842	3.80			6,842	3.80
Corporate and other securities		-	-			-	-			979	2.95			-	-			979	2.95
Total securities held to maturity	$	672	0.96	%	$	871	4.75	%	$	1,589	3.74	%	$	25,135	2.69	%	$	28,267	2.77	%

The fair value of securities with unrealized losses by length of time that the individual securities have been in a continuous unrealized loss position at March 31, 2013 and December 31, 2012 are as follows:

	March 31, 2013
			Less than 12 months				12 months and greater				Total
(In thousands, except number in a loss position)	Total number in a loss position		Estimated fair value		Unrealized loss		Estimated fair value		Unrealized loss		Estimated fair value		Unrealized loss
Available for sale:
U.S. Government sponsored entities		2	$	2,005	$	(4)	$	-	$	-	$	2,005	$	(4)
State and political subdivisions		10		6,196		(150)		-		-		6,196		(150)
Residential mortgage-backed securities		3		1,945		(25)		1,773		(63)		3,718		(88)
Commercial mortgage-backed securities		4		684		(3)		158		-		842		(3)
Corporate and other securities		7		3,455		(38)		3,144		(380)		6,599		(418)
Total temporarily impaired securities		26	$	14,285	$	(220)	$	5,075	$	(443)	$	19,360	$	(663)
Held to maturity:
U.S. Government sponsored entities		2	$	4,019	$	(31)	$	-	$	-	$	4,019	$	(31)
Residential mortgage-backed securities		3		2,246		(8)	$	214		(3)	$	2,460		(11)
Commercial mortgage-backed securities		2		4,070		(106)		-		-		4,070		(106)
Corporate and other securities		1		974		(4)		-		-		974		(4)
Total temporarily impaired securities		8	$	11,309	$	(149)	$	214	$	(3)	$	11,523	$	(152)
	December 31, 2012
			Less than 12 months				12 months and greater				Total
(In thousands, except number in a loss position)	Total number in a loss position		Estimated fair value		Unrealized loss		Estimated fair value		Unrealized loss		Estimated fair value		Unrealized loss
Available for sale:
Residential mortgage-backed securities		5	$	3,272	$	(43)	$	1,951	$	(80)	$	5,223	$	(123)
Commercial mortgage-backed securities		4		2,351		(2)		-		-		2,351		(2)
Corporate and other securities		6		2,486		(26)		2,994		(546)		5,480		(572)
Total temporarily impaired securities		15	$	8,109	$	(71)	$	4,945	$	(626)	$	13,054	$	(697)
Held to maturity:
Residential mortgage-backed securities		3	$	838	$	(2)	$	279	$	(11)	$	1,117	$	(13)
Total temporarily impaired securities		3	$	838	$	(2)	$	279	$	(11)	$	1,117	$	(13)

Unrealized Losses

The unrealized losses in each of the categories presented in the tables above are discussed in the paragraphs that follow:

U.S. government sponsored entities and state and political subdivision securities: The unrealized losses on investments in these types of securities were caused by the increase in interest rate spreads.  The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investments.  Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity, the Company did not consider these investments to be other-than temporarily impaired as of March 31, 2013.  There was no impairment on these securities at December 31, 2012.

Residential and commercial mortgage-backed securities:  The unrealized losses on investments in mortgage-backed securities were caused by increases in interest rate spreads or faster prepayment speeds.  The majority of contractual cash flows of these securities are guaranteed by Fannie Mae, Ginnie Mae and the Federal Home Loan Mortgage Corporation.  It is expected that the securities would not be settled at a price significantly less than the par value of the investment.  Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity, the Company did not consider these investments to be other-than-temporarily impaired as of March 31, 2013 or December 31, 2012.

Corporate and other securities: Included in this category are corporate debt securities, Community Reinvestment Act (“CRA”) investments, asset-backed securities, and trust preferred securities.  The unrealized losses on corporate debt securities were due to widening credit spreads and the unrealized losses on CRA investments were caused by decreases in the market prices of the shares.  The Company evaluated the prospects of the issuers and forecasted a recovery period; and as a result determined it did not consider these investments to be other-than-temporarily impaired as of March 31, 2013 or December 31, 2012.  The unrealized losses on asset-backed securities were caused by increases in interest rate spreads.  The majority of contractual cash flows of these securities are guaranteed by Sallie Mae as part of the Federal Family Education Loan ("FFEL") Program.It is expected that the securities would not be settled at a price significantly less than the par value of the investment.  Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity, the Company did not consider these investments to be other-than-temporarily impaired as of March 31, 2013 or December 31, 2012.  The unrealized losses on trust preferred securities were caused by an inactive trading market and changes in market credit spreads.  At March 31, 2013 and December 31, 2012, this category consisted of one single-issuer trust preferred security. The contractual terms do not allow the security to be settled at a price less than the par value.  Because the Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, which may be at maturity, the Company did not consider this security to be other-than-temporarily impaired as of March 31, 2013 or December 31, 2012.

Realized Gains and Losses

Gross realized gains (losses) on securities for thethree months ended March 31, 2013 and 2012 are detailed in the table below:

	For the three months ended March 31,
(In thousands)	2013		2012
Available for sale:
Realized gains	$	230	$	228
Realized losses		(4)		(4)
Total securities available for sale		226		224
Held to maturity:
Realized gains		-		-
Realized losses		-		-
Total securities held to maturity		-		-
Net gains on sales of securities	$	226	$	224

The net realized gains are included in noninterest income in the Consolidated Statements of Income as net security gains.  For the three months ended March 31, 2013, there were gross realized gains of $230 thousand and gross realized losses of $4 thousand. The net realized gains during 2013 were a result of the following:

· The Company sold approximately $5.4 million in book value of available for sale asset-backedsecurities and corporate bonds, resulting in pre-tax gains of approximately $227 thousand, and $60 thousand in equity securities resulting in pre-tax gains on $3 thousand.

· Losses of $4 thousand on the partial call of $60 thousand in book value of one available for sale municipal security.

For the three months ended March 31, 2012, there were gross realized gains of $228 thousand and gross realized losses of $4 thousand.  The net realized gains during the three months ended March 31, 2012 were primarily attributed to:

· The Company sold approximately $2.6 million in book value of available for sale mortgage-backed and municipal securities, resulting in pre-tax gains of approximately $228 thousand, partially offset by

· Losses of $4 thousand on the partial call of approximately $60 thousand in book value of one available for sale municipal security.

Pledged Securities

Securities with a carrying value of $79.2 million and $78.4 million at March 31, 2013 and December 31, 2012, respectively, were pledged to secure Government deposits, secure other borrowings and for other purposes required or permitted by law.  Included in these figures was $26.8 million and $25.1 million pledged against Government deposits at March 31, 2013 and December 31, 2012, respectively.

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Allowance for Loan Losses and Reserve for Unfunded Loan Commitments

3 Months Ended

Mar. 31, 2013

Allowance for Loan Losses and Reserve for Unfunded Loan Commitments [Abstract]

Allowance for Loan Losses and Reserve for Unfunded Loan Commitments

Note 9. Allowance for Loan Losses and Reserve for Unfunded Loan Commitments

Allowance for Loan Losses

The Company has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio.  At a minimum, the adequacy of the allowance for loan losses is reviewed by management on a quarterly basis.  For purposes of determining the allowance for loan losses, the Company has segmented the loans in its portfolio by loan type.  Loans are segmented into the following pools: SBA 7(a), SBA 504, commercial, residential mortgages, and consumer loans.  Certain portfolio segments are further broken down into classes based on the associated risks within those segments and the type of collateral underlying each loan.  Commercial loans are divided into the following three classes: commercial real estate, commercial real estate construction and commercial other.  Residential mortgage loans are divided into the following three classes: Residential mortgages, residential construction and purchased mortgages.  Consumer loans are divided into two classes as follows:  Home equity and other.

The standardized methodology used to assess the adequacy of the allowance includes the allocation of specific and general reserves.  The same standard methodology is used, regardless of loan type.  Specific reserves are made to individual impaired loans and troubled debt restructurings (see Note 1 for additional information on this term).  The general reserve is set based upon a representative average historical net charge-off rate adjusted for the following environmental factors: delinquency and impairment trends, charge-off and recovery trends, changes in the volume of restructured loans, volume and loan term trends, changes in risk and underwriting policy trends, staffing and experience changes, national and local economic trends, industry conditions and credit concentration changes.  Beginning in the third quarter of 2009, when calculating the five-year historical net charge-off rate, the Company weights the past three years more heavily due to the higher amount of charge-offs experienced during those years.  All of the environmental factors are ranked and assigned a basis points value based on the following scale: low, low moderate, moderate, high moderate and high risk.  Each environmental factor is evaluated separately for each class of loans and risk weighted based on its individual characteristics. 

· For SBA 7(a), SBA 504 and commercial loans, the estimate of loss based on pools of loans with similar characteristics is made through the use of a standardized loan grading system that is applied on an individual loan level and updated on a continuous basis.  The loan grading system incorporates reviews of the financial performance of the borrower, including cash flow, debt-service coverage ratio, earnings power, debt level and equity position, in conjunction with an assessment of the borrower's industry and future prospects.  It also incorporates analysis of the type of collateral and the relative loan to value ratio.

· For residential mortgage and consumer loans, the estimate of loss is based on pools of loans with similar characteristics.  Factors such as credit score, delinquency status and type of collateral are evaluated.  Factors are updated frequently to capture the recent behavioral characteristics of the subject portfolios, as well as any changes in loss mitigation or credit origination strategies, and adjustments to the reserve factors are made as needed.

According to the Company’s policy, a loss (“charge-off”) is to be recognized and charged to the allowance for loan losses as soon as a loan is recognized as uncollectable.  All credits which are 90 days past due must be analyzed for the Company’s ability to collect on the credit.  Once a loss is known to exist, the charge-off approval process is immediately expedited.  This charge-off policy is followed for all loan types.

The allocated allowance is the total of identified specific and general reserves by loan category.  The allocation is not necessarily indicative of the categories in which future losses may occur.  The total allowance is available to absorb losses from any segment of the portfolio.  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 methodologies for estimating allocated and general reserves in the portfolio. The following tables detail the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2013 and 2012:  

	For the three ended March 31, 2013
(In thousands)	SBA held to maturity		SBA 504		Commercial		Residential		Consumer		Unallocated		Total
Balance, beginning of period	$	3,378	$	1,312	$	7,091	$	1,769	$	524	$	684	$	14,758
Charge-offs		(570)		(200)		(375)		(125)		(59)		-		(1,329)
Recoveries		137		25		101		2		1		-		266
Net charge-offs		(433)		(175)		(274)		(123)		(58)		-		(1,063)
Provision for loan losses charged to expense		463		159		62		231		90		(355)		650
Balance, end of period	$	3,408	$	1,296	$	6,879	$	1,877	$	556	$	329	$	14,345

	For the three ended March 31, 2012
(In thousands)	SBA held to maturity		SBA 504		Commercial		Residential		Consumer		Unallocated		Total
Balance, beginning of period	$	4,088	$	1,423	$	8,129	$	1,703	$	536	$	469	$	16,348
Charge-offs		(615)		(227)		(346)		(113)		-		-		(1,301)
Recoveries		53		28		11		-		-		-		92
Net charge-offs		(562)		(199)		(335)		(113)		-		-		(1,209)
Provision for loan losses charged to expense		113		61		567		180		(9)		288		1,200
Balance, end of period	$	3,639	$	1,285	$	8,361	$	1,770	$	527	$	757	$	16,339

The following tables present loans and their related allowance for loan losses, by portfolio segment, as of March 31, 2013 and December 31, 2012:

	March 31, 2013
(In thousands)	SBA held to maturity		SBA 504		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses ending balance:
Individually evaluated for impairment	$	1,050	$	206	$	423	$	-	$	-	$	-	$	1,679
Collectively evaluated for impairment		2,358		1,090		6,456		1,877		556		329		12,666
Total	$	3,408	$	1,296	$	6,879	$	1,877	$	556	$	329	$	14,345
Loan ending balances:
Individually evaluated for impairment	$	3,498	$	5,501	$	14,252	$	-	$	-	$	-	$	23,251
Collectively evaluated for impairment		53,370		34,283		296,397		136,345		46,369		-		566,764
Total	$	56,868	$	39,784	$	310,649	$	136,345	$	46,369	$	-	$	590,015

	December 31, 2012
(In thousands)	SBA held to maturity		SBA 504		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses ending balance:
Individually evaluated for impairment	$	1,159	$	217	$	625	$	-	$	-	$	-	$	2,001
Collectively evaluated for impairment		2,219		1,095		6,466		1,769		524		684		12,757
Total	$	3,378	$	1,312	$	7,091	$	1,769	$	524	$	684	$	14,758
Loan ending balances:
Individually evaluated for impairment	$	3,712	$	6,852	$	12,802	$	-	$	-	$	-	$	23,366
Collectively evaluated for impairment		54,881		34,586		288,762		132,094		46,410		-		556,733
Total	$	58,593	$	41,438	$	301,564	$	132,094	$	46,410	$	-	$	580,099

Changes in Methodology:

The Company did not make any changes to its allowance for loan losses methodology in the current period.

Reserve for Unfunded Loan Commitments

In addition to the allowance for loan losses, the Company maintains a reserve for unfunded loan commitments at a level that management believes is adequate to absorb estimated probable losses.  Adjustments to the reserve are made through other expense and applied to the reserve which is classified as other liabilities.  At March 31, 2013, a $117 thousand commitment reserve was reported on the balance sheet as an “other liability”, compared to an  $87 thousand commitment reserve at December 31, 2012.

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Net Income per Share (Calculation of Basic and Diluted EPS) (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Net Income per Share [Abstract]
Net income	$ 1,200	$ 905
Less: Preferred stock dividends and discount accretion	404	396
Income available to common shareholders	$ 796	$ 509
Weighted average common shares outstanding - Basic	7,538	7,460
Plus: Potential dilutive common stock equivalents	307	332
Weighted average common shares oustanding - Diluted	7,845	7,792
Net income per common share - Basic	$ 0.11	$ 0.07
Net income per common share - Diluted	$ 0.10	$ 0.07
Stock options and common stock excluded from the income per share computation as their effect would have been anti-dilutive	379	506

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Loans (Classification Of Loans By Class) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Accounts, Notes, Loans and Financing Receivable [Line Items]
SBA loans held to maturity	$ 56,868	$ 58,593
SBA 504 loans	39,784	41,438
Commercial loans	310,649	301,564
Residential mortgage loans	136,345	132,094
Consumer loans	46,369	46,410
Total loans held for investment	590,015	580,099
SBA loans held for sale	6,556	6,937
Total Loans	596,571	587,036
Commercial other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Commercial loans	27,787	24,043
Total Loans	27,787	24,043
Commercial real estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Commercial loans	270,097	264,439
Total Loans	270,097	264,439
Commercial real estate construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Commercial loans	12,765	13,082
Total Loans	12,765	13,082
Residential mortgages [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Residential mortgage loans	129,570	125,232
Total Loans	129,570	125,232
Residential Purchased Mortgages Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Residential mortgage loans	6,775	6,862
Total Loans	6,775	6,862
Home equity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Consumer loans	44,064	45,152
Total Loans	44,064	45,152
Consumer other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Consumer loans	2,305	1,258
Total Loans	$ 2,305	$ 1,258

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Other Comprehensive Income (Tables)

3 Months Ended

Mar. 31, 2013

Other Comprehensive Income [Abstract]

Changes In Other Comprehensive Income (Loss) [TableTextBlock]

The following table shows the changes in other comprehensive income for the three months ended March 31, 2013 and 2012:

	For the three months ended March 31,
	2013						2012
(In thousands)	Pre-tax		Tax		After-tax		Pre-tax		Tax		After-tax
Balance, beginning of period					$	1,333					$	1,121
Unrealized holding losses on securities arising during period	$	(409)	$	(179)		(230)	$	(281)	$	(127)		(154)
Less: Reclassification adjustment for gains on securities included in net income		226		76		150		224		75		149
Net unrealized losses on securities arising during the period		(635)		(255)		(380)		(505)		(202)		(303)
Balance, end of period					$	953					$	818

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Significant Accounting Policies (Stock Transactions - Stock Option Plans Narrative) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Significant Accounting Policies [Abstract]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	3 years
Share Based Compensation Arrangement By ShareBased Payment Award Award Expiration Period	10 years
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	1,720,529
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	541,332	516,332
Share Based Compensation Arrangement By Share Based Payment Award Options Exercised Forfited Or Expired Number	1,097,521
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	81,676
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	25,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Stock Options	$ 278
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Period for Recognition	2 years

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Securities (Gross Realized Gains (Losses) on Investments) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Securities [Abstract]
Available-for-sale Securities, Gross Realized Gains	$ 230	$ 228
Available-for-sale Securities, Gross Realized Losses	(4)	(4)
Available-for-sale Securities, Gross Realized Gain (Loss), Total	226	224
Gain (Loss) on Sale of Securities, Net, Total	$ 226	$ 224

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Fair Value (Schedule Of Fair Value Changes In Level 3) (Details) (Commercial Mortgage Backed Securities [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013
Commercial Mortgage Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Balance, beginning of year	$ 4,463
Payoffs	(505)
Principal paydowns	(244)
Total net gains included in: Other comprehensive income	(33)
Balance, end of year	$ 3,681

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Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Consolidated Statements of Comprehensive Income [Abstract]
Net income	$ 1,200	$ 905
Other comprehensive loss, net of tax:
Unrealized holding losses on securities arising during the period	(230)	(154)
Less: Reclassification adjustment for gains on securities included in net income	150	149
Total other comprehensive income	(380)	(303)
Total comprehensive income	$ 820	$ 602

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Net Income per Share

3 Months Ended

Mar. 31, 2013

Net Income per Share [Abstract]

Net Income per Share

NOTE 3.  Net Income per Share

Basic net income per common share is calculated as net income available to common shareholders divided by the weighted average common shares outstanding during the reporting period.  Net income available to common shareholders is calculated as net income less accrued dividends and discount accretion related to preferred stock. 

Diluted net income per common share is computed similarly to that of basic net income per common share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares, principally stock options and warrants, were issued during the reporting period utilizing the Treasury stock method.

The following is a reconciliation of the calculation of basic and diluted income per share.  

	For the three months ended March 31,
(In thousands, except per share amounts)	2013		2012
Net income	$	1,200	$	905
Less: Preferred stock dividends and discount accretion		404		396
Income available to common shareholders	$	796	$	509
Weighted average common shares outstanding - Basic		7,538		7,460
Plus: Potential dilutive common stock equivalents		307		332
Weighted average common shares outstanding - Diluted		7,845		7,792
Net income per common share - Basic	$	0.11	$	0.07
Net income per common share - Diluted		0.10		0.07
Stock options and common stock excluded from the income per share calculation as their effect would have been anti-dilutive		379		506

The "potential dilutive common stock equivalents" shown in the table above includes the impact of 764,778 common stock warrants issued to the U.S. Department of Treasury under the Capital Purchase Program in December 2008, utilizing the Treasury stock method.  These warrants were dilutive for thethree months ended March 31, 2013 and 2012.

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Loans (Troubled Debt Restructurings Types Of Modifications) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Financing Receivable, Impaired [Line Items]
Financing Receivable, Modifications, Post-Modficiation Recorded Investment, Duration	$ 2,684	$ 3,147
Commercial other [Member]
Financing Receivable, Impaired [Line Items]
Financing Receivable, Modifications, Post-Modficiation Recorded Investment, Duration		1,291
Commercial real estate [Member]
Financing Receivable, Impaired [Line Items]
Financing Receivable, Modifications, Post-Modficiation Recorded Investment, Duration	2,684	1,856
Interest only [Member]
Financing Receivable, Impaired [Line Items]
Financing Receivable, Modifications, Post-Modficiation Recorded Investment, Duration		3,147
Interest only [Member] | Commercial other [Member]
Financing Receivable, Impaired [Line Items]
Financing Receivable, Modifications, Post-Modficiation Recorded Investment, Duration		1,291
Interest only [Member] | Commercial real estate [Member]
Financing Receivable, Impaired [Line Items]
Financing Receivable, Modifications, Post-Modficiation Recorded Investment, Duration		1,856
Interest only with reduced interest [Member]
Financing Receivable, Impaired [Line Items]
Financing Receivable, Modifications, Post-Modficiation Recorded Investment, Duration	2,684
Interest only with reduced interest [Member] | Commercial real estate [Member]
Financing Receivable, Impaired [Line Items]
Financing Receivable, Modifications, Post-Modficiation Recorded Investment, Duration	$ 2,684

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Significant Accounting Policies (Stock Transactions - Stock Option Plans Tables) (Details) (USD $)	3 Months Ended		12 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Significant Accounting Policies [Abstract]
Options Outstanding, shares	516,332
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	25,000
Options exercised, shares		(3,841)
Options Outstanding, shares	541,332		516,332
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number	415,837
Weighted Average exercise Price: Options Outstanding	$ 7.06
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price	$ 6.02
Weighted Average exercise Price: Options Outstanding	$ 7.01		$ 7.06
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price	$ 7.21
Weighted Average Remaining Contractual Life (in years): Options Outstanding	5 years 4 months 24 days		5 years 4 months 24 days
Weighted Average Remaining Contractual Life (in years): Options Outstanding	5 years 4 months 24 days		5 years 4 months 24 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Remaining Contractual Term	4 years 3 months 18 days
Aggregate Intrinsic Value: Options Outstanding	$ 327,725
Aggregate Intrinsic Value: Options Outstanding	391,318		327,725
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value	$ 363,559

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Fair Value (Quantitative Information About Level 3 Inputs) (Details)	3 Months Ended
	Mar. 31, 2013
Prepayment Risk [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Measurements, Valuation Techniques	Discounted Cash Flow
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Gain (Loss) Included in Earnings, Description	Prepayment rate
Default Rate [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Gain (Loss) Included in Earnings, Description	Default rate
Loss Severity [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Gain (Loss) Included in Earnings, Description	Loss severity
Minimum [Member] | Prepayment Risk [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	8.00%
Minimum [Member] | Default Rate [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	10.00%
Minimum [Member] | Loss Severity [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	10.00%
Maximum [Member] | Prepayment Risk [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	15.00%
Maximum [Member] | Default Rate [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	15.00%
Maximum [Member] | Loss Severity [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	25.00%
Weighted Average [Member] | Prepayment Risk [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	10.00%
Weighted Average [Member] | Default Rate [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	12.50%
Weighted Average [Member] | Loss Severity [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	18.00%

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Net Income per Share (Tables)

3 Months Ended

Mar. 31, 2013

Net Income per Share [Abstract]

Reconciliation Of The Calculation Of Basic And Diluted Income Per Share [TableTextBlock]

	For the three months ended March 31,
(In thousands, except per share amounts)	2013		2012
Net income	$	1,200	$	905
Less: Preferred stock dividends and discount accretion		404		396
Income available to common shareholders	$	796	$	509
Weighted average common shares outstanding - Basic		7,538		7,460
Plus: Potential dilutive common stock equivalents		307		332
Weighted average common shares outstanding - Diluted		7,845		7,792
Net income per common share - Basic	$	0.11	$	0.07
Net income per common share - Diluted		0.10		0.07
Stock options and common stock excluded from the income per share calculation as their effect would have been anti-dilutive		379		506