LOANS (Tables)

6 Months Ended

Jun. 30, 2013

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

	June 30, 2013			December 31, 2012
Commercial and industrial	$	179,785		$	168,709
Commercial real estate (1)		481,840			369,271
Real estate construction		10,294			15,469
Residential mortgages (1st and 2nd liens)		150,616			146,575
Home equity		60,951			66,468
Consumer		11,965			14,288
Gross loans		895,451			780,780
Allowance for loan losses		(17,293	)		(17,781	)
Net loans at end of period	$	878,158		$	762,999

(1)

Includes multifamily loans of $82,079 and $9,261 at June 30, 2013 and December 31, 2012, respectively.

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

For the three and six months ended June 30, 2013 and 2012, the activity in the allowance for loan losses disaggregated by class is shown below (in thousands).

	Commercial and industrial			Commercial real estate			Real estate construction			Residential mortgages (1st and 2nd liens)			Home equity			Consumer			Unallocated			Total

Three months ended June 30, 2013
Balance at beginning of period	$	5,345		$	6,570		$	845		$	2,441		$	924		$	245		$	1,464		$	17,834
Charge-offs		(1,279	)		-			-			(74	)		-			(111	)		-			(1,464	)
Recoveries		911			1			-			-			1			10			-			923
(Credit) provision for loan losses		(199	)		659			(567	)		(26	)		134			103			(104	)		-
Balance at end of period	$	4,778		$	7,230		$	278		$	2,341		$	1,059		$	247		$	1,360		$	17,293

Three months ended June 30, 2012
Balance at beginning of period	$	23,793		$	8,879		$	579		$	2,035		$	1,255		$	354		$	3,113		$	40,008
Charge-offs		(790	)		(7,692	)		-			(193	)		(532	)		(50	)		-			(9,257	)
Recoveries		769			-			80			1			-			26			-			876
(Credit) provision for loan losses		(8,690	)		6,994			(496	)		(209	)		1,285			(154	)		(1,130	)		(2,400	)
Balance at end of period	$	15,082		$	8,181		$	163		$	1,634		$	2,008		$	176		$	1,983		$	29,227

	Commercial and industrial			Commercial real estate			Real estate construction			Residential mortgages (1st and 2nd liens)			Home equity			Consumer			Unallocated			Total

Six months ended June 30, 2013
Balance at beginning of period	$	6,181		$	6,149		$	141		$	1,576		$	907		$	189		$	2,638		$	17,781
Charge-offs		(1,627	)		-			-			(74	)		-			(122	)		-			(1,823	)
Recoveries		1,210			73			-			1			2			49			-			1,335
(Credit) provision for loan losses		(986	)		1,008			137			838			150			131			(1,278	)		-
Balance at end of period	$	4,778		$	7,230		$	278		$	2,341		$	1,059		$	247		$	1,360		$	17,293

Six months ended June 30, 2012
Balance at beginning of period	$	25,047		$	11,029		$	623		$	2,401		$	512		$	313		$	33		$	39,958
Charge-offs		(1,127	)		(7,692	)		-			(588	)		(593	)		(82	)		-			(10,082	)
Recoveries		1,624			-			80			2			-			45			-			1,751
(Credit) provision for loan losses		(10,462	)		4,844			(540	)		(181	)		2,089			(100	)		1,950			(2,400	)
Balance at end of period	$	15,082		$	8,181		$	163		$	1,634		$	2,008		$	176		$	1,983		$	29,227

Additional information of allowance for loan losses

At June 30, 2013 and December 31, 2012, the ending balance in the allowance for loan losses disaggregated by class and impairment methodology follows below (in thousands). Also shown below are total loans at June 30, 2013 and December 31, 2012 disaggregated by class and impairment methodology (in thousands).

June 30, 2013	Commercial and industrial		Commercial real estate		Real estate construction		Residential mortgages (1st and 2nd liens)		Home equity		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	377	$	-	$	-	$	605	$	351	$	52	$	-	$	1,385
Ending balance: collectively evaluated for impairment		4,401		7,230		278		1,736		708		195		1,360		15,908
Ending balance	$	4,778	$	7,230	$	278	$	2,341	$	1,059	$	247	$	1,360	$	17,293
Loan balances:
Ending balance: individually evaluated for impairment	$	13,355	$	8,474	$	-	$	5,292	$	999	$	228	$	-	$	28,348
Ending balance: collectively evaluated for impairment		166,430		473,366		10,294		145,324		59,952		11,737		-		867,103
Ending balance	$	179,785	$	481,840	$	10,294	$	150,616	$	60,951	$	11,965	$	-	$	895,451

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

Summary of impaired loans

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

	June 30, 2013						December 31, 2012
	Unpaid Principal Balance		Recorded Balance		Allowance Allocated		Unpaid Principal Balance		Recorded Balance		Allowance Allocated
With no allowance recorded:
Commercial and industrial	$	9,458	$	9,155	$	-	$	7,913	$	7,492	$	-
Commercial real estate		8,941		8,474		-		8,859		7,282		-
Real estate construction		-		-		-		1,334		1,305		-
Residential mortgages (1st and 2nd liens)		2,726		2,597		-		1,918		1,788		-
Home equity		572		572		-		418		416		-
Consumer		166		74		-		21		21		-
Subtotal		21,863		20,872		-		20,463		18,304		-

With an allowance recorded:
Commercial and industrial		5,106		4,200		377		2,884		2,877		340
Commercial real estate		-		-		-		2,161		2,161		22
Real estate construction		-		-		-		656		656		1
Residential mortgages (1st and 2nd liens)		2,895		2,695		605		3,015		2,872		575
Home equity		428		427		351		86		86		86
Consumer		155		154		52		-		-		-
Subtotal		8,584		7,476		1,385		8,802		8,652		1,024
Total	$	30,447	$	28,348	$	1,385	$	29,265	$	26,956	$	1,024

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

	Three Months Ended June 30, 2013						Three Months Ended June 30, 2012
	Average recorded investment in impaired loans		Interest income recognized on impaired loans		Interest income recognized on a cash basis on impaired loans		Average recorded investment in impaired loans		Interest income recognized on impaired loans		Interest income recognized on a cash basis on impaired loans
Commercial and industrial	$	14,146	$	175	$	-	$	28,398	$	315	$	-
Commercial real estate		8,532		76		-		54,531		259		-
Real estate construction		420		14		-		18,093		338		-
Residential mortgages (1st and 2nd liens)		5,442		52		-		1,898		85		-
Home equity		950		1		-		3,863		-		-
Consumer		277		3		-		624		-		-
Total	$	29,767	$	321	$	-	$	107,407	$	997	$	-

	Six Months Ended June 30, 2013						Six Months Ended June 30, 2012
	Average recorded investment in impaired loans		Interest income recognized on impaired loans		Interest income recognized on a cash basis on impaired loans		Average recorded investment in impaired loans		Interest income recognized on impaired loans		Interest income recognized on a cash basis on impaired loans
Commercial and industrial	$	14,682	$	232	$	-	$	31,425	$	315	$	-
Commercial real estate		8,589		145		-		60,363		259		-
Real estate construction		981		14		-		18,557		338		-
Residential mortgages (1st and 2nd liens)		5,476		94		-		8,287		85		-
Home equity		951		4		-		3,900		-		-
Consumer		279		8		-		641		-		-
Total	$	30,958	$	497	$	-	$	123,173	$	997	$	-

Troubled debt restructurings

The following tables present certain information regarding outstanding TDRs at June 30, 2013 and December 31, 2012 (dollars in thousands), TDRs executed during the three and six months ended June 30, 2013 and 2012 (dollars in thousands) and TDRs with payment defaults of 90 days or more within twelve months of restructuring during the three and six months ended June 30, 2013 and 2012 (dollars in thousands):

	June 30, 2013					December 31, 2012
Total TDRs	Number of Loans		Outstanding Recorded Balance			Number of Loans		Outstanding Recorded Balance

Commercial and industrial		42		$	6,490		41		$	6,468
Commercial real estate		7			4,998		9			6,238
Residential mortgages (1st and 2nd liens)		17			4,144		15			3,587
Consumer		5			229		5			311
		71		$	15,861		70		$	16,604

	Three months ended June 30, 2013						Three months ended June 30, 2012
			Pre-Modification		Post-Modification				Pre-Modification		Post-Modification
	Number		Outstanding		Outstanding		Number		Outstanding		Outstanding
	of		Recorded		Recorded		of		Recorded		Recorded
New TDRs	Loans		Balance		Balance		Loans		Balance		Balance

Commercial and industrial		2	$	572	$	572		5	$	2,140	$	2,272
Residential mortgages (1st and 2nd liens)		-		-		-		1		81		81
Consumer		-		-		-		1		49		49
		2	$	572	$	572		7	$	2,270	$	2,402

	Six months ended June 30, 2013						Six months ended June 30, 2012
			Pre-Modification		Post-Modification				Pre-Modification		Post-Modification
	Number		Outstanding		Outstanding		Number		Outstanding		Outstanding
	of		Recorded		Recorded		of		Recorded		Recorded
New TDRs	Loans		Balance		Balance		Loans		Balance		Balance

Commercial and industrial		4	$	892	$	892		14	$	5,456	$	5,588
Residential mortgages (1st and 2nd liens)		3		905		905		1		81		81
Consumer		1		17		17		1		49		49
		8	$	1,814	$	1,814		16	$	5,586	$	5,718

	Three months ended June 30, 2013				Three months ended June 30, 2012
			Outstanding				Outstanding
	Number		Recorded		Number		Recorded
Defaulted TDRs	of Loans		Balance		of Loans		Balance

Commercial and industrial		-	$	-		1	$	1,127
		-	$	-		1	$	1,127

	Six months ended June 30, 2013				Six months ended June 30, 2012
			Outstanding				Outstanding
	Number		Recorded		Number		Recorded
Defaulted TDRs	of Loans		Balance		of Loans		Balance

Commercial and industrial		-	$	-		2	$	2,508
Commercial real estate		-		-		1		-
Real estate construction		-		-		1		1,646
Residential mortgages (1st and 2nd liens)		-		-		1		488
		-	$	-		5	$	4,642

Summary of loans modified and renewed and not considered TDRs

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

	Three months ended June 30, 2013				Three months ended June 30, 2012
			Outstanding				Outstanding
	Number		Recorded		Number		Recorded
Non-TDR Modifications	of Loans		Balance		of Loans		Balance

Commercial and industrial		8	$	4,501		5	$	1,958
Commercial real estate		9		6,415		7		6,936
		17	$	10,916		12	$	8,894

	Six months ended June 30, 2013				Six months ended June 30, 2012
			Outstanding				Outstanding
	Number		Recorded		Number		Recorded
Non-TDR Modifications	of Loans		Balance		of Loans		Balance

Commercial and industrial		8	$	4,501		6	$	2,538
Commercial real estate		20		26,118		9		10,115
		28	$	30,619		15	$	12,653

Summary of impaired and non-accrual loans

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

	June 30, 2013		December 31, 2012
Non-accrual loans	$	17,183	$	16,435
Non-accrual loans held-for-sale		-		907
Loans 90 days past due and still accruing		-		-
OREO		-		1,572
Total non-performing assets	$	17,183	$	18,914
TDRs accruing interest	$	9,843	$	9,954
TDRs non-accruing	$	6,018	$	6,650

Summarizes non-accrual loans by loan class

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

	June 30, 2013										December 31, 2012
								% of										% of
			% of			Total		Total					% of			Total		Total
			Total			Loans		Loans					Total			Loans		Loans
Commercial and industrial	$	9,597		55.9	%	$	179,785		1.1	%	$	6,529		39.8	%	$	168,709		0.8	%
Commercial real estate (1)		4,227		24.6			481,840		0.4			5,192		31.6			369,271		0.7
Real estate construction		-		-			10,294		-			1,961		11.9			15,469		0.3
Residential mortgages (1st and 2nd liens)		2,617		15.2			150,616		0.3			2,466		15.0			146,575		0.3
Home equity		664		3.9			60,951		0.1			266		1.6			66,468		-
Consumer		78		0.4			11,965		-			21		0.1			14,288		-
Total	$	17,183		100.0	%	$	895,451		1.9	%	$	16,435		100.0	%	$	780,780		2.1	%

(1)

At June 30, 2013, there were no non-accrual multifamily loans.

Collateral value securing non-accrual loans

The following table details the collateral value securing non-accrual loans at June 30, 2013 and December 31, 2012 (in thousands):

	June 30, 2013				December 31, 2012
	Principal Balance		Collateral Value		Principal Balance		Collateral Value
Commercial and industrial (1)	$	9,597	$	6,000	$	6,529	$	4,400
Commercial real estate		4,227		10,750		5,192		12,675
Real estate construction		-		-		1,961		3,661
Residential mortgages (1st and 2nd liens)		2,617		4,749		2,466		5,141
Home equity		664		2,294		266		849
Consumer		78		-		21		-
Total	$	17,183	$	23,793	$	16,435	$	26,726

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

Summary of current and past due loans

At June 30, 2013 and December 31, 2012, past due loans disaggregated by class were as follows (in thousands):

	Past Due
June 30, 2013	30 - 59 days		60 - 89 days		90 days and over		Total		Current		Total
Commercial and industrial	$	51	$	53	$	9,597	$	9,701	$	170,084	$	179,785
Commercial real estate (1)		643		317		4,227		5,187		476,653		481,840
Real estate construction		-		-		-		-		10,294		10,294
Residential mortgages
(1st and 2nd liens)		1,291		364		2,617		4,272		146,344		150,616
Home equity		773		400		664		1,837		59,114		60,951
Consumer		16		5		78		99		11,866		11,965
Total	$	2,774	$	1,139	$	17,183	$	21,096	$	874,355	$	895,451

(1)	At June 30, 2013, there were no past due multifamily loans.

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

Credit risk profile by internally assigned grade

At June 30, 2013 and December 31, 2012, based upon the most recent analysis performed, the following table presents the Company’s loan portfolio credit risk profile by internally assigned grade disaggregated by class of loan (in thousands):

June 30, 2013	Commercial and industrial		Commercial real estate (1)		Real estate construction		Residential mortgages (1st and 2nd liens)		Home equity		Consumer		Total
Grade:
Pass	$	157,222	$	437,700	$	10,294	$	145,383	$	60,202	$	11,731	$	822,532
Special mention		5,970		19,495		-		-		-		-		25,465
Substandard		16,593		24,645		-		5,233		749		234		47,454
Total	$	179,785	$	481,840	$	10,294	$	150,616	$	60,951	$	11,965	$	895,451

(1) At June 30, 2013, there were no special mention or substandard grade multifamily loans.

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