10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: JUNE 30, 2015

OR

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

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File No. 000-13580

SUFFOLK BANCORP

(Exact Name of Registrant as Specified in Its Charter)

NEW YORK	11-2708279
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

4 WEST SECOND STREET, P.O. BOX 9000, RIVERHEAD, NY 11901

(Address of Principal Executive Offices) (Zip Code)

(631) 208-2400

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý    No ☐

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

Yes ý    No ☐

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

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

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

Yes ☐    No ý

As of July 15, 2015, there were 11,779,468 shares of registrant’s Common Stock outstanding.

SUFFOLK BANCORP

Form 10-Q

For the Quarterly Period Ended June 30, 2015

Table of Contents

		Page
	PART I
Item 1.	Financial Statements
	Condensed Consolidated Statements of Condition (Unaudited) as of June 30, 2015 and December 31, 2014	2
	Condensed Consolidated Statements of Income (Unaudited) for the Three and Six Months Ended June 30, 2015 and 2014	3
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Six Months Ended June 30, 2015 and 2014	4
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Six Months Ended June 30, 2015 and 2014	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2015 and 2014	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	43
	PART II
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults upon Senior Securities	44
Item 4.	Mine Safety Disclosures	44
Item 5.	Other Information	44
Item 6.	Exhibits	44
	Signatures	45

1

PART I

ITEM 1. – FINANCIAL STATEMENTS

SUFFOLK BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)

June 30, 2015 and December 31, 2014

(dollars in thousands, except per share data)

	June 30, 2015			December 31, 2014
ASSETS
Cash and cash equivalents
Cash and non-interest-bearing deposits due from banks	$	78,344		$	41,140
Interest-bearing deposits due from banks		18,650			13,376
Federal funds sold		-			1,000
Total cash and cash equivalents		96,994			55,516
Interest-bearing time deposits in other banks		-			10,000
Federal Reserve and Federal Home Loan Bank stock and other investments		6,177			8,600
Investment securities:
Available for sale, at fair value		273,837			298,670
Held to maturity (fair value of $65,851 and $64,796, respectively)		63,618			62,270
Total investment securities		337,455			360,940
Loans		1,476,626			1,355,427
Allowance for loan losses		20,051			19,200
Net loans		1,456,575			1,336,227
Loans held for sale		3,132			26,495
Premises and equipment, net		23,601			23,641
Bank owned life insurance		45,721			45,109
Deferred taxes		15,681			15,714
Accrued interest and loan fees receivable		5,774			5,676
Goodwill and other intangibles		2,992			2,991
Other assets		4,118			4,374
TOTAL ASSETS	$	1,998,220		$	1,895,283
LIABILITIES & STOCKHOLDERS' EQUITY
Demand deposits	$	766,444		$	683,634
Savings, N.O.W. and money market deposits		709,450			653,667
Subtotal core deposits		1,475,894			1,337,301
Time deposits		242,500			218,759
Total deposits		1,718,394			1,556,060
Borrowings		65,000			130,000
Unfunded pension liability		6,081			6,303
Capital leases		4,455			4,511
Other liabilities		13,139			15,676
TOTAL LIABILITIES		1,807,069			1,712,550
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock (par value $2.50; 15,000,000 shares authorized; 13,945,208 shares and 13,836,508 shares issued at June 30, 2015 and December 31, 2014, respectively; 11,779,470 shares and 11,670,770 shares outstanding at June 30, 2015 and December 31, 2014, respectively)		34,863			34,591
Surplus		45,102			44,230
Retained earnings		123,891			116,169
Treasury stock at par (2,165,738 shares)		(5,414	)		(5,414	)
Accumulated other comprehensive loss, net of tax		(7,291	)		(6,843	)
TOTAL STOCKHOLDERS' EQUITY		191,151			182,733
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,998,220		$	1,895,283

See accompanying notes to unaudited condensed consolidated financial statements.

2

SUFFOLK BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

For the Three and Six Months Ended June 30, 2015 and 2014

(dollars in thousands, except per share data)

	Three Months Ended June 30,					Six Months Ended June 30,
	2015		2014			2015		2014
INTEREST INCOME
Loans and loan fees	$	15,995	$	13,203		$	30,564	$	26,080
U.S. Government agency obligations		531		591			1,072		1,219
Obligations of states and political subdivisions		1,276		1,489			2,611		2,994
Collateralized mortgage obligations		176		224			358		474
Mortgage-backed securities		443		500			888		1,001
Corporate bonds		45		87			83		177
Federal funds sold, securities purchased under agreements to resell and interest-bearing deposits due from banks		20		42			43		88
Dividends		90		35			150		73
Total interest income		18,576		16,171			35,769		32,106
INTEREST EXPENSE
Savings, N.O.W. and money market deposits		294		287			568		579
Time deposits		353		337			647		682
Borrowings		108		5			216		5
Total interest expense		755		629			1,431		1,266
Net interest income		17,821		15,542			34,338		30,840
Provision for loan losses		-		250			250		500
Net interest income after provision for loan losses		17,821		15,292			34,088		30,340
NON-INTEREST INCOME
Service charges on deposit accounts		823		944			1,570		1,947
Other service charges, commissions and fees		680		892			1,273		1,571
Fiduciary fees		-		280			-		559
Net gain (loss) on sale of securities available for sale		160		(23	)		186		(23	)
Net gain on sale of portfolio loans		-		-			198		-
Net gain on sale of mortgage loans originated for sale		61		70			205		163
Net gain on sale of premises and equipment		-		110			-		752
Income from bank owned life insurance		303		366			612		720
Other operating income		23		39			97		81
Total non-interest income		2,050		2,678			4,141		5,770
OPERATING EXPENSES
Employee compensation and benefits		8,516		8,488			17,122		17,349
Occupancy expense		1,373		1,411			2,835		2,846
Equipment expense		404		434			789		883
Consulting and professional services		544		639			882		1,190
FDIC assessment		286		268			576		535
Data processing		514		559			1,084		1,132
Branch consolidation credits		-		(279	)		-		(449	)
Other operating expenses		1,537		1,632			2,994		2,975
Total operating expenses		13,174		13,152			26,282		26,461
Income before income tax expense		6,697		4,818			11,947		9,649
Income tax expense		1,579		1,047			2,820		2,158
NET INCOME	$	5,118	$	3,771		$	9,127	$	7,491
EARNINGS PER COMMON SHARE - BASIC	$	0.44	$	0.33		$	0.78	$	0.65
EARNINGS PER COMMON SHARE - DILUTED	$	0.43	$	0.32		$	0.77	$	0.64
WEIGHTED AVERAGE COMMON SHARES - BASIC		11,748,068		11,575,322			11,721,396		11,574,174
WEIGHTED AVERAGE COMMON SHARES - DILUTED		11,822,562		11,647,921			11,793,307		11,639,298
CASH DIVIDENDS DECLARED PER COMMON SHARE	$	0.06	$	-		$	0.12	$	-

See accompanying notes to unaudited condensed consolidated financial statements.

3

SUFFOLK BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

For the Three and Six Months Ended June 30, 2015 and 2014

(in thousands)

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Net income	$	5,118		$	3,771		$	9,127		$	7,491
Other comprehensive (loss) income, net of tax and reclassification adjustments:
Change in unrealized (loss) gain on securities available for sale arising during the period, net of tax of ($1,049), $1,586, ($346) and $4,267, respectively		(1,604	)		2,371			(529	)		7,071
Change in unrealized gain (loss) on securities transferred from available for sale to held to maturity, net of tax of $26, ($307), $53 and ($1,227), respectively		40			(278	)		81			(1,890	)
Total other comprehensive (loss) income, net of tax		(1,564	)		2,093			(448	)		5,181
Total comprehensive income	$	3,554		$	5,864		$	8,679		$	12,672

See accompanying notes to unaudited condensed consolidated financial statements.

4

SUFFOLK BANCORP AND SUBSIDIARIES

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

For the Six Months Ended June 30, 2015 and 2014

(in thousands, except per share data)

	Six Months Ended June 30,
	2015			2014
Common stock
Balance, January 1	$	34,591		$	34,348
Dividend reinvestment (15,249 shares issued in 2015)		38			-
Stock options exercised (32,667 and 3,334 shares issued, respectively)		82			8
Stock-based compensation (60,784 and 76,750 net shares issued, respectively)		152			192
Ending balance		34,863			34,548
Surplus
Balance, January 1		44,230			43,280
Dividend reinvestment		307			-
Stock options exercised		380			42
Stock-based compensation		185			193
Ending balance		45,102			43,515
Retained earnings
Balance, January 1		116,169			102,273
Net income		9,127			7,491
Cash dividends on common stock ($0.12 per share in 2015)		(1,405	)		-
Ending balance		123,891			109,764
Treasury stock
Balance, January 1		(5,414	)		(5,414	)
Ending balance		(5,414	)		(5,414	)
Accumulated other comprehensive loss, net of tax
Balance, January 1		(6,843	)		(7,289	)
Other comprehensive (loss) income		(448	)		5,181
Ending balance		(7,291	)		(2,108	)
Total stockholders' equity	$	191,151		$	180,305

See accompanying notes to unaudited condensed consolidated financial statements.

5

SUFFOLK BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the Six Months Ended June 30, 2015 and 2014

(in thousands)

	Six Months Ended June 30,
	2015			2014
NET INCOME	$	9,127		$	7,491
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Provision for loan losses		250			500
Depreciation and amortization		1,146			1,194
Stock-based compensation - net		337			385
Net amortization of premiums		583			585
Originations of mortgage loans held for sale		(22,689	)		(7,661	)
Proceeds from sale of mortgage loans originated for sale		22,413			7,426
Gain on sale of mortgage loans originated for sale		(205	)		(163	)
Gain on sale of portfolio loans		(198	)		-
Increase in other intangibles		(1	)		(8	)
Deferred tax expense (benefit)		327			(43	)
Increase in accrued interest and loan fees receivable		(98	)		(166	)
Decrease (increase) in other assets		256			(905	)
Adjustment to unfunded pension liability		(222	)		(183	)
Decrease in other liabilities		(2,537	)		(5,594	)
Income from bank owned life insurance		(612	)		(720	)
Gain on sale of premises and equipment		-			(752	)
Net (gain) loss on sale of securities available for sale		(186	)		23
Net cash provided by operating activities		7,691			1,409
CASH FLOWS FROM INVESTING ACTIVITIES
Principal payments on investment securities		2,886			6,880
Proceeds from sale of investment securities - available for sale		7,003			20,604
Maturities of investment securities - available for sale		20,530			11,955
Purchases of investment securities - available for sale		(6,800	)		(800	)
Maturities of investment securities - held to maturity		1,727			841
Purchases of investment securities -  held to maturity		(3,000	)		(2,834	)
Decrease in interest-bearing time deposits in other banks		10,000			-
Decrease (increase) in Federal Reserve and Federal Home Loan Bank stock and other investments		2,423			(338	)
Proceeds from sale of portfolio loans		23,986			-
Loan originations - net		(120,542	)		(125,933	)
Proceeds from sale of premises and equipment		-			1,064
Increase in bank owned life insurance		-			(5,000	)
Purchases of premises and equipment - net		(1,106	)		(315	)
Net cash used in investing activities		(62,893	)		(93,876	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts		162,334			58,142
Net decrease in short-term borrowings		(80,000	)		-
Net increase in long-term borrowings		15,000			-
Proceeds from stock options exercised		462			50
Cash dividends paid on common stock		(1,405	)		-
Proceeds from shares issued under the dividend reinvestment plan		345			-
Decrease  in capital lease payable		(56	)		(49	)
Net cash provided by financing activities		96,680			58,143
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		41,478			(34,324	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		55,516			132,352
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	96,994		$	98,028
SUPPLEMENTAL DATA:
Interest paid	$	1,381		$	1,271
Income taxes paid	$	2,561		$	3,641
Investment securities transferred from available for sale to held to maturity	$	-		$	48,147

See accompanying notes to unaudited condensed consolidated financial statements.

6

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Suffolk Bancorp (the “Company”) was incorporated in 1985 as a bank holding company. The Company currently owns all of the outstanding capital stock of Suffolk County National Bank (the “Bank”). The Bank was organized under the national banking laws of the United States in 1890. The Bank formed Suffolk Greenway, Inc. (the “REIT”), a real estate investment trust, and owns 100% of an insurance agency and two corporations used to acquire foreclosed real estate. The insurance agency and the two corporations used to acquire foreclosed real estate are immaterial to the Company’s operations. The unaudited interim condensed consolidated financial statements include the accounts of the Company and the Bank and its subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Unless the context otherwise requires, references herein to the Company include the Company and the Bank and subsidiaries on a consolidated basis.

In the opinion of the Company’s management, the preceding unaudited interim condensed consolidated financial statements contain all adjustments, consisting of normal accruals, necessary for a fair presentation of its condensed consolidated statement of condition as of June 30, 2015, its condensed consolidated statements of income for the three and six months ended June 30, 2015 and 2014, its condensed consolidated statements of comprehensive income for the three and six months ended June 30, 2015 and 2014, its condensed consolidated statements of changes in stockholders’ equity for the six months ended June 30, 2015 and 2014 and its condensed consolidated statements of cash flows for the six months ended June 30, 2015 and 2014.

The preceding unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X, as well as in accordance with predominant practices within the banking industry. They do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. The results of operations for the three and six months ended June 30, 2015 are not necessarily indicative of the results of operations to be expected for the remainder of the year. For further information, please refer to the audited consolidated financial statements and footnotes thereto included in the Company’s 2014 Annual Report on Form 10-K.

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

The reconciliation of basic and diluted weighted average number of common shares outstanding for the three and six months ended June 30, 2015 and 2014 follows.

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Weighted average common shares outstanding		11,630,056		11,575,322		11,616,565		11,574,174
Weighted average unvested restricted shares		118,012		-		104,831		-
Weighted average shares for basic earnings per share		11,748,068		11,575,322		11,721,396		11,574,174
Additional diluted shares:
Stock options		74,494		72,599		71,911		65,124
Weighted average shares for diluted earnings per share		11,822,562		11,647,921		11,793,307		11,639,298

Loans and Loan Interest Income Recognition – Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned discounts, deferred loan fees and costs. Unearned discounts on installment loans are credited to income using methods that result in a level yield. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income over the respective term of the loan without anticipating prepayments.

7

Interest income is accrued on the unpaid loan principal balance. Recognition of interest income is discontinued when reasonable doubt exists as to whether principal or interest due can be collected. Loans of all classes will generally no longer accrue interest when over 90 days past due unless the loan is well-secured and in process of collection. When a loan is placed on non-accrual status, all interest previously accrued, but not collected, is reversed against current-year interest income. Interest received on such loans is applied against principal or interest, according to management’s judgment as to the collectability of the principal, until qualifying for return to accrual status. Loans may start accruing interest again when they become current as to principal and interest for at least six months, and when, after a well-documented analysis by management, it has been determined that the loans can be collected in full.  For all classes of loans, an impaired loan is defined as a loan for which it is probable that the lender will not collect all amounts due under the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties are considered troubled debt restructurings (“TDRs”) and are classified as impaired. Generally, TDRs are initially classified as non-accrual until sufficient time has passed to assess whether the restructured loan will continue to perform. For impaired, accruing loans, interest income is recognized on an accrual basis with cash offsetting the recorded accruals upon receipt.

Allowance for Loan Losses - The allowance for loan losses is a valuation allowance for probable incurred losses, increased by the provision for loan losses and recoveries, and decreased by loan charge-offs. For all classes of loans, when a loan, in full or in part, is deemed uncollectible, it is charged against the allowance for loan losses. This happens when the loan is past due and the borrower has not shown the ability or intent to make the loan current, or the borrower does not have sufficient assets to pay the debt, or the value of the collateral is less than the balance of the loan and is not considered likely to improve soon. The allowance for loan losses is determined by a quarterly analysis of the loan portfolio. Such analysis includes changes in the size and composition of the portfolio, the Company’s own historical loan losses, industry-wide losses, current and anticipated economic trends, and details about individual loans. It also includes estimates of the actual value of collateral, other possible sources of repayment and estimates that are susceptible to significant changes due to changes in appraisal values of collateral, national and regional economic conditions and other relevant factors. All non-accrual loans over $250 thousand in the commercial and industrial, commercial real estate and real estate construction loan classes and all TDRs are evaluated individually for impairment. All other loans are generally evaluated as homogeneous pools with similar risk characteristics. In assessing the adequacy of the allowance for loan losses, management reviews the loan portfolio by separate classes that have similar risk and collateral characteristics. These classes are commercial and industrial, commercial real estate, multifamily, mixed use commercial, real estate construction, residential mortgages, home equity and consumer loans.

The allowance for loan losses consists of specific and general components, as well as an unallocated component. The specific component relates to loans that are individually classified as impaired. Specific reserves are established based on an analysis of the most probable sources of repayment or liquidation of collateral. Impaired loans that are collateral dependent are reviewed based on the fair market value of collateral and the estimated time required to recover the Company’s investment in the loans, as well as the cost of doing so, and the estimate of the recovery. Non-collateral dependent impaired loans are reviewed based on the present value of estimated future cash flows, including balloon payments, if any, using the loan’s effective interest rate. While every impaired loan is evaluated individually, not every loan requires a specific reserve. Specific reserves fluctuate based on changes in the underlying loans, anticipated sources of repayment, and charge-offs. The general component covers non-impaired loans and is based on historical loss experience for each loan class from a rolling twelve quarter period and modifying those percentages, if necessary, after adjusting for current qualitative and environmental factors that reflect changes in the estimated collectability of the loan class not captured by historical loss data. These factors augment actual loss experience and help estimate the probability of loss within the loan portfolio based on emerging or inherent risk trends. These qualitative factors are applied as an adjustment to historical loss rates and require judgments that cannot be subjected to exact mathematical calculation. These adjustments reflect management’s overall estimate of the extent to which current losses on a pool of loans will differ from historical loss experience. These adjustments are subjective estimates and management reviews them on a quarterly basis. TDRs are also considered impaired with impairment generally measured at the present value of estimated future cash flows using the loan’s effective interest rate at inception or using the fair value of collateral, less estimated costs to sell, if repayment is expected solely from the collateral. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

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

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

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

8

Recent Accounting Guidance – In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), “Revenue from Contracts with Customers,” which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of the ASU is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. The ASU defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. After the FASB’s vote on July 9, 2015 to defer the ASU’s effective date for one year, the ASU is effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting the ASU recognized at the date of adoption (which includes additional footnote disclosures). Earlier application would be permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company has not yet determined the method by which it will adopt ASU 2014-09 in 2018 and does not believe that the adoption will have a material effect on the Company’s consolidated financial statements. On May 12, 2015, the FASB issued an exposure draft proposing amendments that would not change the core principles of the standard, but would clarify the accounting for licenses of intellectual property, as well as the identification of performance obligations in a contract.

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

Reclassifications — Certain reclassifications have been made to prior period information in order to conform to the current period’s presentation. Such reclassifications had no impact on the Company’s consolidated results of operations or financial condition.

2. ACCUMULATED OTHER COMPREHENSIVE INCOME (“AOCI”)

The changes in the Company’s AOCI by component, net of tax, for the three and six months ended June 30, 2015 and 2014 follow (in thousands).

	Three Months Ended June 30, 2015												Three Months Ended June 30, 2014
	Unrealized Gains and Losses on Available for  Sale Securities			Unrealized Losses on Securities Transferred from Available for Sale  to Held to Maturity			Pension and Post- Retirement Plan Items			Total			Unrealized Gains and Losses on Available for Sale Securities		Unrealized Losses on Securities Transferred from Available for Sale to Held to Maturity			Pension and Post- Retirement Plan Items			Total
Beginning balance	$	3,712		$	(1,764	)	$	(7,675	)	$	(5,727	)	$	605	$	(1,612	)	$	(3,194	)	$	(4,201	)
Other comprehensive (loss) income before reclassifications		(1,507	)		-			-			(1,507	)		2,357		(310	)		-			2,047
Amounts reclassified from AOCI		(97	)		40			-			(57	)		14		32			-			46
Net other comprehensive (loss) income		(1,604	)		40			-			(1,564	)		2,371		(278	)		-			2,093
Ending balance	$	2,108		$	(1,724	)	$	(7,675	)	$	(7,291	)	$	2,976	$	(1,890	)	$	(3,194	)	$	(2,108	)

9

	Six Months Ended June 30, 2015												Six Months Ended June 30, 2014
	Unrealized Gains and Losses on Available for  Sale Securities			Unrealized Losses on Securities Transferred from Available for Sale to Held to Maturity			Pension and Post- Retirement Plan Items			Total			Unrealized Gains and Losses on Available for Sale Securities			Unrealized Losses  on Securities Transferred from Available for Sale to Held to  Maturity			Pension and Post- Retirement Plan Items			Total
Beginning balance	$	2,637		$	(1,805	)	$	(7,675	)	$	(6,843	)	$	(4,095	)	$	-		$	(3,194	)	$	(7,289	)
Other comprehensive (loss) income before reclassifications		(417	)		-			-			(417	)		7,057			(1,943	)		-			5,114
Amounts reclassified from AOCI		(112	)		81			-			(31	)		14			53			-			67
Net other comprehensive (loss) income		(529	)		81			-			(448	)		7,071			(1,890	)		-			5,181
Ending balance	$	2,108		$	(1,724	)	$	(7,675	)	$	(7,291	)	$	2,976		$	(1,890	)	$	(3,194	)	$	(2,108	)

Reclassifications out of AOCI for the three and six months ended June 30, 2015 and 2014 follow (in thousands).

	Amount Reclassified from AOCI
	Three Months Ended June 30,						Six Months Ended June 30,						Affected Line Item in the Statement
Details about AOCI Components	2015			2014			2015			2014			Where Net Income is Presented
Unrealized gains and losses on available for sale securities	$	160		$	(23	)	$	186		$	(23	)	Net gain (loss) on sale of securities available for sale
Unrealized losses on securities transferred from available for sale to held to maturity		(67	)		(54	)		(134	)		(86	)	Interest income - U.S. Government agency obligations
		(36	)		31			(21	)		42		Income tax expense
Total, net of tax	$	57		$	(46	)	$	31		$	(67	)

3. INVESTMENT SECURITIES

At the time of purchase of a security, the Company designates the security as either available for sale or held to maturity, depending upon investment objectives, liquidity needs and intent. Securities held to maturity are stated at cost, adjusted for premium amortized or discount accreted, if any. The Company has the positive intent and ability to hold such securities to maturity. Securities available for sale are stated at estimated fair value. Unrealized gains and losses are excluded from income and reported net of tax in AOCI as a separate component of stockholders’ equity until realized. Changes in unrealized gains and losses are reported, net of tax, in the consolidated statements of comprehensive income. Interest earned on securities is included in interest income. Realized gains and losses on the sale of securities are reported in the consolidated statements of income and determined using the adjusted cost of the specific security sold.

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

10

The amortized cost, fair value and gross unrealized gains and losses of the Company’s investment securities available for sale and held to maturity at June 30, 2015 and December 31, 2014 were as follows (in thousands):

	June 30, 2015									December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale:
U.S. Government agency securities	$	38,975	$	-	$	(737	)	$	38,238	$	42,474	$	-	$	(897	)	$	41,577
Obligations of states and political subdivisions		114,278		5,664		-			119,942		131,300		6,469		-			137,769
Collateralized mortgage obligations		20,824		175		(430	)		20,569		22,105		423		(531	)		21,997
Mortgage-backed securities		90,276		28		(1,216	)		89,088		92,095		88		(1,264	)		90,919
Corporate bonds		6,000		-		-			6,000		6,336		90		(18	)		6,408
Total available for sale securities		270,353		5,867		(2,383	)		273,837		294,310		7,070		(2,710	)		298,670
Held to maturity:
U.S. Government agency securities		48,499		1,478		(10	)		49,967		48,365		1,717		-			50,082
Obligations of states and political subdivisions		12,119		642		-			12,761		13,905		809		-			14,714
Corporate bonds		3,000		123		-			3,123		-		-		-			-
Total held to maturity securities		63,618		2,243		(10	)		65,851		62,270		2,526		-			64,796
Total investment securities	$	333,971	$	8,110	$	(2,393	)	$	339,688	$	356,580	$	9,596	$	(2,710	)	$	363,466

At June 30, 2015 and December 31, 2014, investment securities carried at $268 million and $245 million, respectively, were pledged primarily for public funds on deposit and as collateral for the Company’s derivative swap contracts.

The amortized cost, contractual maturities and fair value of the Company’s investment securities at June 30, 2015 (in thousands) are presented in the table below. Collateralized mortgage obligations (“CMOs”) and mortgage-backed securities (“MBS”) assume maturity dates pursuant to average lives.

	June 30, 2015
	Amortized Cost		Fair Value
Securities available for sale:
Due in one year or less	$	30,745	$	31,271
Due from one to five years		142,658		146,416
Due from five to ten years		96,950		96,150
Total securities available for sale		270,353		273,837
Securities held to maturity:
Due in one year or less		837		866
Due from one to five years		4,593		4,910
Due from five to ten years		32,097		32,711
Due after ten years		26,091		27,364
Total securities held to maturity		63,618		65,851
Total investment securities	$	333,971	$	339,688

11

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

	Three Months Ended June 30,					Six Months Ended June 30,
	2015		2014			2015		2014
Proceeds	$	6,472	$	20,604		$	7,003	$	20,604
Gross realized gains	$	175	$	229		$	201	$	229
Gross realized losses		15		252			15		252
Net realized gains (losses)	$	160	$	(23	)	$	186	$	(23	)

Information pertaining to securities with unrealized losses at June 30, 2015 and December 31, 2014, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows (in thousands):

	Less than 12 months					12 months or longer					Total
June 30, 2015	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Government agency securities	$	23,487	$	(341	)	$	19,593	$	(406	)	$	43,080	$	(747	)
Collateralized mortgage obligations		-		-			8,274		(430	)		8,274		(430	)
Mortgage-backed securities		50,848		(621	)		26,604		(595	)		77,452		(1,216	)
Total	$	74,335	$	(962	)	$	54,471	$	(1,431	)	$	128,806	$	(2,393	)

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

All securities with unrealized losses for twelve months or longer at June 30, 2015 are issued or guaranteed by U.S. Government agencies or sponsored enterprises and the related unrealized losses resulted solely from the current interest rate environment and the corresponding shape of the yield curve. The Company does not intend to sell and it is not more likely than not that the Company will be required to sell these securities prior to their recovery to a level equal to or greater than amortized cost. Management has determined that no other-than-temporary impairment (“OTTI”) was present at June 30, 2015.

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

During 2013, the Bank sold 100,000 Visa Class B shares to another Visa USA member financial institution at a gross pre-tax gain of approximately $7.8 million which was recorded in non-interest income in the Company’s statement of income. In conjunction with the sale, the Company entered into derivative swap contracts with the purchaser of these Visa Class B shares which provide for settlements between the purchaser and the Company based upon a change in the conversion ratio of Visa Class B shares into Visa Class A shares. The Company’s recorded liability representing the fair value of the derivative was $752 thousand at June 30, 2015 and December 31, 2014.

12

The present value of estimated future fees to be paid to the derivative counterparty, or carrying costs, calculated by reference to the market price of the Visa Class A shares at a fixed rate of interest are expensed as incurred. For the three and six months ended June 30, 2015, $71 thousand and $141 thousand, respectively, in such carrying costs was expensed. For the three and six months ended June 30, 2014, $56 thousand and $115 thousand, respectively, was expensed. The Company has pledged U.S. Government agency securities held in its available for sale portfolio, with a market value of approximately $3 million at both June 30, 2015 and December 31, 2014, as collateral for the derivative swap contracts.

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

At June 30, 2015, the Company still owned 38,638 Visa Class B shares subsequent to the sales described here. Upon termination of the existing transfer restriction and settlement of the litigation, and to the extent that the Company continues to own such Visa Class B shares in the future, the Company expects to record its Visa Class B shares at fair value.

4. LOANS

At June 30, 2015 and December 31, 2014, net loans disaggregated by class consisted of the following (in thousands):

	June 30, 2015			December 31, 2014
Commercial and industrial	$	196,881		$	177,813
Commercial real estate		598,866			560,524
Multifamily		361,309			309,666
Mixed use commercial		50,372			34,806
Real estate construction		31,628			26,206
Residential mortgages		182,828			187,828
Home equity		48,298			50,982
Consumer		6,444			7,602
Gross loans		1,476,626			1,355,427
Allowance for loan losses		(20,051	)		(19,200	)
Net loans at end of period	$	1,456,575		$	1,336,227

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

	Three Months Ended June 30, 2015												Three Months Ended June 30, 2014
	Balance at beginning of period		Charge-offs			Recoveries		(Credit) provision for loan losses			Balance at end of period		Balance at  beginning of period		Charge-offs			Recoveries		Provision (credit) for loan losses			Balance at end of period
Commercial and industrial	$	1,998	$	-		$	693	$	(618	)	$	2,073	$	2,481	$	(200	)	$	210	$	441		$	2,932
Commercial real estate		7,352		-			11		(1,363	)		6,000		7,208		-			485		206			7,899
Multifamily		4,467		-			-		(402	)		4,065		2,640		-			-		(196	)		2,444
Mixed use commercial		273		-			-		192			465		87		-			-		125			212
Real estate construction		360		-			-		118			478		217		-			-		13			230
Residential mortgages		2,618		-			16		(63	)		2,571		2,627		(32	)		4		51			2,650
Home equity		728		-			5		(61	)		672		718		-			18		25			761
Consumer		155		(9	)		10		(6	)		150		186		(2	)		8		(26	)		166
Unallocated		1,374		-			-		2,203			3,577		1,573		-			-		(389	)		1,184
Total	$	19,325	$	(9	)	$	735	$	-		$	20,051	$	17,737	$	(234	)	$	725	$	250		$	18,478

13

	Six Months Ended June 30, 2015												Six Months Ended June 30, 2014
	Balance at beginning of  period		Charge-offs			Recoveries		(Credit)  provision  for loan  losses			Balance at end of period		Balance at beginning of period		Charge-offs			Recoveries		Provision (credit) for loan losses			Balance at end of period
Commercial and industrial	$	1,560	$	(492	)	$	1,036	$	(31	)	$	2,073	$	2,615	$	(315	)	$	503	$	129		$	2,932
Commercial real estate		6,777		-			18		(795	)		6,000		6,572		-			497		830			7,899
Multifamily		4,018		-			-		47			4,065		2,159		-			-		285			2,444
Mixed use commercial		261		-			-		204			465		54		-			-		158			212
Real estate construction		383		-			-		95			478		88		-			-		142			230
Residential mortgages		3,027		-			27		(483	)		2,571		2,463		(32	)		8		211			2,650
Home equity		709		-			7		(44	)		672		745		-			45		(29	)		761
Consumer		166		(10	)		15		(21	)		150		241		(4	)		13		(84	)		166
Unallocated		2,299		-			-		1,278			3,577		2,326		-			-		(1,142	)		1,184
Total	$	19,200	$	(502	)	$	1,103	$	250		$	20,051	$	17,263	$	(351	)	$	1,066	$	500		$	18,478

Factors considered by management in determining loan impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

The general component of the allowance covers non-impaired loans and is based on historical loss experience, adjusted for qualitative factors. These qualitative factors include consideration of the following:  levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures and practices; experience, ability, and depth of lending management and other relevant staff; local, regional and national economic trends and conditions; industry conditions; and effects of changes in credit concentrations.

At June 30, 2015 and December 31, 2014, the ending balance in the allowance for loan losses disaggregated by class and impairment methodology is as follows (in thousands). Also in the tables below are total loans at June 30, 2015 and December 31, 2014 disaggregated by class and impairment methodology (in thousands).

	Allowance for Loan Losses						Loan Balances
June 30, 2015	Individually evaluated for impairment		Collectively evaluated for impairment		Ending balance		Individually evaluated for impairment		Collectively evaluated for impairment		Ending balance
Commercial and industrial	$	5	$	2,068	$	2,073	$	2,848	$	194,033	$	196,881
Commercial real estate		-		6,000		6,000		5,357		593,509		598,866
Multifamily		-		4,065		4,065		-		361,309		361,309
Mixed use commercial		-		465		465		-		50,372		50,372
Real estate construction		-		478		478		-		31,628		31,628
Residential mortgages		779		1,792		2,571		5,639		177,189		182,828
Home equity		158		514		672		1,664		46,634		48,298
Consumer		85		65		150		392		6,052		6,444
Unallocated		-		3,577		3,577		-		-		-
Total	$	1,027	$	19,024	$	20,051	$	15,900	$	1,460,726	$	1,476,626

14

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

The following table presents the Company’s impaired loans disaggregated by class at June 30, 2015 and December 31, 2014 (in thousands).

	June 30, 2015						December 31, 2014
	Unpaid Principal Balance		Recorded Balance		Allowance Allocated		Unpaid Principal Balance		Recorded Balance		Allowance Allocated
With no allowance recorded:
Commercial and industrial	$	2,808	$	2,808	$	-	$	4,833	$	4,833	$	-
Commercial real estate		5,775		5,357		-		10,632		10,214		-
Residential mortgages		2,084		1,955		-		1,645		1,516		-
Home equity		1,402		1,402		-		1,377		1,377		-
Consumer		212		212		-		137		137		-
Subtotal		12,281		11,734		-		18,624		18,077		-
With an allowance recorded:
Commercial and industrial		41		40		5		57		56		16
Residential mortgages		3,684		3,684		779		3,906		3,906		809
Home equity		398		262		158		326		190		92
Consumer		180		180		85		185		186		88
Subtotal		4,303		4,166		1,027		4,474		4,338		1,005
Total	$	16,584	$	15,900	$	1,027	$	23,098	$	22,415	$	1,005

15

The following table presents the Company’s average recorded investment in impaired loans and the related interest income recognized disaggregated by class for the three and six months ended June 30, 2015 and 2014 (in thousands). No interest income was recognized on a cash basis on impaired loans for any of the periods presented. The interest income recognized on accruing impaired loans is shown in the following table.

	Three Months Ended June 30,								Six Months Ended June 30,
	2015				2014				2015				2014
	Average recorded investment in impaired loans		Interest income  recognized on impaired loans		Average recorded investment in impaired loans		Interest income  recognized on impaired loans		Average recorded investment in impaired  loans		Interest income recognized on impaired loans		Average recorded  investment in impaired loans		Interest income  recognized on  impaired loans
Commercial and industrial	$	3,170	$	226	$	7,290	$	292	$	3,857	$	259	$	7,428	$	551
Commercial real estate		9,461		549		11,167		56		9,832		599		11,361		155
Residential mortgages		5,644		41		5,021		40		5,528		79		5,028		76
Home equity		1,666		15		720		3		1,664		28		745		20
Consumer		395		3		204		5		389		6		188		7
Total	$	20,336	$	834	$	24,402	$	396	$	21,270	$	971	$	24,750	$	809

TDRs are modifications or renewals where the Company has granted a concession to a borrower in financial distress. The Company reviews all modifications and renewals for determination of TDR status. The Company allocated $747 thousand and $790 thousand of specific reserves to customers whose loan terms have been modified as TDRs as of June 30, 2015 and December 31, 2014, respectively. These loans involved the restructuring of terms to allow customers to mitigate the risk of default by meeting a lower payment requirement based upon their current cash flow. These may also include loans that renewed at existing contractual rates, but below market rates for comparable credit.

A total of $45 thousand and $100 thousand were committed to be advanced in connection with TDRs as of June 30, 2015 and December 31, 2014, respectively, representing the amount the Company is legally required to advance under existing loan agreements. These loans are not in default under the terms of the loan agreements and are accruing interest. It is the Company’s policy to evaluate advances on such loans on a case-by-case basis. Absent a legal obligation to advance pursuant to the terms of the loan agreement, the Company generally will not advance funds for which it has outstanding commitments, but may do so in certain circumstances.

Outstanding TDRs, disaggregated by class, at June 30, 2015 and December 31, 2014 are as follows (dollars in thousands):

	June 30, 2015				December 31, 2014
TDRs Outstanding	Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance
Commercial and industrial		24	$	1,885		31	$	3,683
Commercial real estate		6		5,126		8		10,179
Residential mortgages		20		4,444		19		4,314
Home equity		5		1,204		5		1,216
Consumer		7		273		7		281
Total		62	$	12,932		70	$	19,673

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The following presents, disaggregated by class, information regarding TDRs executed during the three and six months ended June 30, 2015 and 2014 (dollars in thousands):

	Three Months Ended June 30,
	2015						2014
New TDRs	Number of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance		Number of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Commercial and industrial		1	$	323	$	323		7	$	1,500	$	1,500
Commercial real estate		-		-		-		2		5,161		5,161
Residential mortgages		-		-		-		3		273		273
Home equity		-		-		-		2		109		109
Consumer		-		-		-		3		99		99
Total		1	$	323	$	323		17	$	7,142	$	7,142

	Six Months Ended June 30,
	2015						2014
New TDRs	Number of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance		Number of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Commercial and industrial		2	$	335	$	335		10	$	1,877	$	1,877
Commercial real estate		-		-		-		2		5,161		5,161
Residential mortgages		2		194		199		3		273		273
Home equity		-		-		-		2		109		109
Consumer		-		-		-		3		99		99
Total		4	$	529	$	534		20	$	7,519	$	7,519

Presented below and disaggregated by class is information regarding loans modified as TDRs that had payment defaults of 90 days or more within twelve months of restructuring during the three and six months ended June 30, 2015 and 2014 (dollars in thousands).

	Three Months Ended June 30,								Six Months Ended June 30,
	2015				2014				2015				2014
Defaulted TDRs	Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance
Commercial real estate		-	$	-		-	$	-		-	$	-		2	$	1,566
Consumer		1		46		-		-		1		46		-		-
Total		1	$	46		-	$	-		1	$	46		2	$	1,566

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

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

	June 30, 2015		December 31, 2014
Non-accrual loans	$	5,529	$	12,981
Non-accrual loans held for sale		-		-
Loans 90 days past due and still accruing		-		-
OREO		-		-
Total non-performing assets	$	5,529	$	12,981
TDRs accruing interest	$	10,091	$	9,380
TDRs non-accruing	$	2,841	$	10,293

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At June 30, 2015 and December 31, 2014, non-accrual loans disaggregated by class were as follows (dollars in thousands):

	June 30, 2015										December 31, 2014
	Non-accrual loans		% of Total			Total Loans		% of Total Loans			Non-accrual loans		% of Total			Total Loans		% of Total Loans
Commercial and industrial	$	1,785		32.3	%	$	196,881		0.1	%	$	4,060		31.3	%	$	177,813		0.3	%
Commercial real estate		1,759		31.8			598,866		0.1			6,556		50.5			560,524		0.5
Multifamily		-		-			361,309		-			-		-			309,666		-
Mixed use commercial		-		-			50,372		-			-		-			34,806		-
Real estate construction		-		-			31,628		-			-		-			26,206		-
Residential mortgages		1,465		26.5			182,828		0.1			2,020		15.6			187,828		0.1
Home equity		355		6.4			48,298		0.1			303		2.3			50,982		0.1
Consumer		165		3.0			6,444		-			42		0.3			7,602		-
Total	$	5,529		100.0	%	$	1,476,626		0.4	%	$	12,981		100.0	%	$	1,355,427		1.0	%

Additional interest income of approximately $83 thousand and $145 thousand would have been recorded during the three months ended June 30, 2015 and 2014, respectively, and $171 thousand and $639 thousand during the six months ended June 30, 2015 and 2014, respectively, if non-accrual loans had performed in accordance with their original terms.

At June 30, 2015 and December 31, 2014, past due loans disaggregated by class were as follows (in thousands).

	Past Due
June 30, 2015	30 - 59 days			60 - 89 days			90 days and over			Total			Current			Total
Commercial and industrial	$	-		$	2,578		$	1,785		$	4,363		$	192,518		$	196,881
Commercial real estate		-			-			1,759			1,759			597,107			598,866
Multifamily		-			-			-			-			361,309			361,309
Mixed use commercial		-			-			-			-			50,372			50,372
Real estate construction		-			-			-			-			31,628			31,628
Residential mortgages		1,196			348			1,465			3,009			179,819			182,828
Home equity		496			-			355			851			47,447			48,298
Consumer		-			-			165			165			6,279			6,444
Total	$	1,692		$	2,926		$	5,529		$	10,147		$	1,466,479		$	1,476,626
% of Total Loans		0.1	%		0.2	%		0.4	%		0.7	%		99.3	%		100.0	%

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

The Bank utilizes an eight-grade risk-rating system for commercial and industrial loans, commercial real estate and construction loans. Loans in risk grades 1- 4 are considered pass loans. The Bank’s risk grades are as follows:

Risk Grade 1, Excellent - Loans secured by liquid collateral such as certificates of deposit, reputable bank letters of credit, or other cash equivalents; loans that are guaranteed or otherwise backed by the full faith and credit of the United States government or an agency thereof, such as the Small Business Administration; or loans to any publicly held company with a current long-term debt rating of A or better.

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Risk Grade 2, Good -  Loans to businesses that have strong financial statements containing an unqualified opinion from a CPA firm and at least three consecutive years of profits; loans supported by un-audited financial statements containing strong balance sheets, five consecutive years of profits, a five-year satisfactory relationship with the Bank, and key balance sheet and income statement trends that are either stable or positive; loans secured by publicly traded marketable securities where there is no impediment to liquidation; loans to individuals backed by liquid personal assets, established credit history, and unquestionable character; or loans to publicly held companies with current long-term debt ratings of Baa or better.

Risk Grade 3, Satisfactory - Loans supported by financial statements (audited or un-audited) that indicate average or slightly below average risk and having some deficiency or vulnerability to changing economic conditions; loans with some weakness but offsetting features of other support are readily available; loans that are meeting the terms of repayment, but which may be susceptible to deterioration if adverse factors are encountered. Loans may be graded Satisfactory when there is no recent information on which to base a current risk evaluation and the following conditions apply:

· At inception, the loan was properly underwritten, did not possess an unwarranted level of credit risk, and the loan met the above criteria for a risk grade of Excellent, Good, or Satisfactory.

· At inception, the loan was secured with collateral possessing a loan value adequate to protect the Bank from loss.

· The loan has exhibited two or more years of satisfactory repayment with a reasonable reduction of the principal balance.

· During the period that the loan has been outstanding, there has been no evidence of any credit weakness. Some examples of weakness include slow payment, lack of cooperation by the borrower, breach of loan covenants or the borrower is in an industry known to be experiencing problems. If any of these credit weaknesses is observed, a lower risk grade may be warranted.

Risk Grade 4, Satisfactory/Monitored - Loans in this category are considered to be of acceptable credit quality, but contain greater credit risk than satisfactory loans due to weak balance sheets, marginal earnings or cash flow, or other uncertainties. These loans warrant a higher than average level of monitoring to ensure that weaknesses do not advance. The level of risk in a Satisfactory/Monitored loan is within acceptable underwriting guidelines so long as the loan is given the proper level of management supervision.

Risk Grade 5, Special Mention - Loans in this category possess potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position at some future date. Special Mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. The key distinctions of a Special Mention classification are that (1) it is indicative of an unwarranted level of risk and (2) weaknesses are considered potential not defined impairments to the primary source of repayment.

Risk Grade 6, Substandard - One or more of the following characteristics may be exhibited in loans classified Substandard:

· Loans which possess a defined credit weakness. The likelihood that a loan will be paid from the primary source of repayment is uncertain. Financial deterioration is under way and very close attention is warranted to ensure that the loan is collected without loss.

· Loans are inadequately protected by the current net worth and paying capacity of the obligor.

· The primary source of repayment is gone, and the Bank is forced to rely on a secondary source of repayment, such as collateral liquidation or guarantees.

· Loans have a distinct possibility that the Bank will sustain some loss if deficiencies are not corrected.

· Unusual courses of action are needed to maintain a high probability of repayment.

· The borrower is not generating enough cash flow to repay loan principal; however, it continues to make interest payments.

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· The lender is forced into a subordinated or unsecured position due to flaws in documentation.

· Loans have been restructured so that payment schedules, terms, and collateral represent concessions to the borrower when compared to the normal loan terms.

· The lender is seriously contemplating foreclosure or legal action due to the apparent deterioration in the loan.

· There is a significant deterioration in market conditions to which the borrower is highly vulnerable.

Risk Grade 7, Doubtful - One or more of the following characteristics may be present in loans classified Doubtful:

· Loans have all of the weaknesses of those classified as Substandard. However, based on existing conditions, these weaknesses make full collection of principal highly improbable.

· The primary source of repayment is gone, and there is considerable doubt as to the quality of the secondary source of repayment.

· The possibility of loss is high but because of certain important pending factors which may strengthen the loan, loss classification is deferred until the exact status of repayment is known.

Risk Grade 8, Loss - Loans are considered uncollectible and of such little value that continuing to carry them as assets is not feasible. Loans will be classified Loss when it is neither practical nor desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.

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

The following presents the Company’s loan portfolio credit risk profile by internally assigned grade disaggregated by class of loan at June 30, 2015 and December 31, 2014 (in thousands).

	June 30, 2015												December 31, 2014
	Grade												Grade
	Pass			Special mention			Substandard			Total			Pass			Special mention			Substandard			Total
Commercial and industrial	$	182,614		$	3,898		$	10,369		$	196,881		$	167,922		$	1,225		$	8,666		$	177,813
Commercial real estate		582,851			11,568			4,447			598,866			536,536			9,182			14,806			560,524
Multifamily		361,309			-			-			361,309			309,666			-			-			309,666
Mixed use commercial		50,356			-			16			50,372			34,806			-			-			34,806
Real estate construction		31,628			-			-			31,628			26,206			-			-			26,206
Residential mortgages		180,564			-			2,264			182,828			183,263			-			4,565			187,828
Home equity		47,943			-			355			48,298			49,569			-			1,413			50,982
Consumer		6,279			-			165			6,444			7,279			-			323			7,602
Total	$	1,443,544		$	15,466		$	17,616		$	1,476,626		$	1,315,247		$	10,407		$	29,773		$	1,355,427
% of Total		97.8	%		1.0	%		1.2	%		100.0	%		97.0	%		0.8	%		2.2	%		100.0	%

5. EMPLOYEE BENEFITS

Retirement Plan- The Company’s retirement plan is noncontributory and covers substantially all eligible employees. The plan conforms to the provisions of the Employee Retirement Income Security Act of 1974, as amended, and the Pension Protection Act of 2006, which requires certain funding rules for defined benefit plans. The Company’s policy is to accrue for all pension costs and to fund the maximum amount allowable for tax purposes. Actuarial gains and losses that arise from changes in assumptions concerning future events are amortized over a period that reflects the long-term nature of pension expense used in estimating pension costs. On December 31, 2012, the Company’s retirement plan was frozen such that no additional pension benefits would accumulate. For the three months ended June 30, 2015 and 2014, the Company’s net periodic pension credit was $111 thousand and $91 thousand, respectively, and $222 thousand and $182 thousand, respectively, for the six months ended June 30, 2015 and 2014.

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

6. STOCK-BASED COMPENSATION

Stock Options

Under the terms of the Company’s stock option plans adopted in 1999 and 2009, options have been granted to key employees and directors to purchase shares of the Company’s stock. Options are awarded by the Compensation Committee of the Board of Directors. Both plans provide that the option price shall not be less than the fair value of the common stock on the date the option is granted. All options are exercisable for a period of ten years or less.

No options were granted in 2015 or 2014. Options granted in 2013 and 2012 are exercisable over a three-year period commencing one year from the date of grant at a rate of one-third per year. Options granted in 2011 are exercisable over a three-year period commencing three years from the date of grant at a rate of one-third per year.

The total intrinsic value of options exercised during the first six months of 2015 and 2014 was $324 thousand and $24 thousand, respectively. The total cash received from such option exercises was $462 thousand and $50 thousand, respectively, excluding the tax benefit realized. In exercising those options, 32,667 shares and 3,334 shares, respectively, of the Company’s common stock were issued.

Both plans provide for but do not require the grant of stock appreciation rights (“SARs”) that the holder may exercise instead of the underlying option. At June 30, 2015, there were 6,000 SARs outstanding related to options granted before 2011. The SARs had no intrinsic value at June 30, 2015. When the SAR is exercised, the underlying option is canceled. The optionee receives shares of common stock or cash with a fair market value equal to the excess of the fair value of the shares subject to the option at the time of exercise (or the portion thereof so exercised) over the aggregate option price of the shares set forth in the option agreement. The exercise of SARs is treated as the exercise of the underlying option.

A summary of stock option activity follows:

	Number of Shares			Weighted-Average Exercise Price Per Share
Outstanding, January 1, 2015		251,100		$	16.33
Granted		-			-
Exercised		(32,667	)	$	14.12
Forfeited or expired		(16,666	)	$	19.67
Outstanding, June 30, 2015		201,767		$	16.42

The following summarizes shares subject to purchase from stock options outstanding and exercisable as of June 30, 2015:

	Outstanding					Exercisable
Range of Exercise Prices	Shares		Weighted-Average  Remaining  Contractual Life	Weighted-Average Exercise Price		Shares		Weighted-Average  Remaining  Contractual Life	Weighted-Average Exercise Price
$10.00 - $14.00		96,667	6.6 years	$	11.68		63,334	6.7 years	$	12.14
$14.01 - $20.00		83,100	8.1 years	$	17.80		32,438	8.0 years	$	17.36
$20.01 - $30.00		5,000	3.6 years	$	28.30		5,000	3.6 years	$	28.30
$30.01 - $40.00		17,000	1.5 years	$	33.12		17,000	1.5 years	$	33.12
		201,767	6.7 years	$	16.42		117,772	6.2 years	$	17.29

Restricted Stock Awards

Under the Company’s Amended and Restated 2009 Stock Incentive Plan (the “2009 Plan”), the Company can award options, SARs and restricted stock. During the first six months of 2015, the Company awarded 71,612 shares of restricted stock to certain key employees and directors. Generally, the restricted stock awards currently outstanding vest over a three-year period commencing one year from the date of grant at a rate of one-third per year. The fair value of the 22,213 restricted stock awards that vested during the first six months of 2015 was $500 thousand. Of the 22,213 vested shares, 4,787 were withheld to pay taxes due upon vesting. A summary of restricted stock activity follows:

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	Number of Shares			Weighted-Average Grant-Date Fair Value
Nonvested, January 1, 2015		72,350		$	22.51
Granted		71,612		$	23.18
Vested		(22,213	)	$	22.51
Forfeited or expired		(6,041	)	$	22.52
Nonvested, June 30, 2015		115,708		$	22.92

The Company recognizes compensation expense for the fair value of stock options and restricted stock on a straight line basis over the requisite service period of the grants. Compensation expense related to stock-based compensation amounted to $337 thousand and $385 thousand for the six months ended June 30, 2015 and 2014, respectively. The remaining unrecognized compensation cost of approximately $137 thousand and $2.3 million at June 30, 2015 related to stock options and restricted stock, respectively, will be expensed over the remaining weighted average vesting period of approximately 1.3 years and 2.3 years, respectively.

Under the 2009 Plan, a total of 500,000 shares of the Company’s common stock were reserved for issuance, of which 159,030 shares remain for possible issuance at June 30, 2015. There are no remaining shares reserved for issuance under the 1999 Stock Option Plan.

7. INCOME TAXES

The deferred tax assets and liabilities are netted and presented in a single amount which is included in deferred taxes in the accompanying consolidated statements of condition. The realization of deferred tax assets (“DTAs”) (net of a recorded valuation allowance) is largely dependent upon future taxable income, future reversals of existing taxable temporary differences and the ability to carry back losses to available tax years. In assessing the need for a valuation allowance, the Company considers positive and negative evidence, including taxable income in carryback years, scheduled reversals of deferred tax liabilities, expected future taxable income and tax planning strategies. At June 30, 2015 the Company had no remaining Federal net operating loss carryforwards and had net operating loss carryforwards of approximately $19.0 million for New York State (“NYS”) income tax purposes, which may be applied against future taxable income. The Company has a full valuation allowance of $848 thousand, tax effected, on the NYS net operating loss carryforward due to the Company’s significant tax-exempt investment income. The valuation allowance may be reversed to income in future periods to the extent that the related DTAs are realized or when the Company returns to consistent, taxable earnings in NYS. The NYS unused net operating loss carryforwards are expected to expire in varying amounts through the year 2032.

The Company recorded income tax expense of $2.8 million in the first half of 2015 resulting in an effective tax rate of 23.6% versus an income tax expense of $2.2 million and an effective tax rate of 22.4% in the comparable period a year ago. The increase primarily related to the change in the federal tax rate from 34% to 35% based on the federal tax rates expected to be in effect during the periods in which the temporary differences reverse. Partially offsetting the federal rate increase was the net New York City deferred tax benefit resulting from the opening of the Long Island City office.

The Company has no unrecognized tax benefits at June 30, 2015 as compared to $34 thousand at December 31, 2014. There is no accrued interest relating to uncertain tax positions. The Company files income tax returns in the U.S. federal jurisdiction and in New York State. Federal returns are subject to audits by tax authorities and the Company is currently under an audit for the tax year 2013. It is not anticipated that the unrecognized tax benefits will significantly change over the next 12 months.

8. REGULATORY MATTERS

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital requirements that involve quantitative measures of the Company’s and the Bank’s assets, liabilities and certain off-balance sheet items calculated under regulatory accounting practices. The Company’s and the Bank’s capital amounts and the Bank’s classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of total, tier 1 and common equity tier 1 capital, as defined in the federal banking regulations, to risk-weighted assets and of tier 1 capital to adjusted average assets (leverage). Management believes, as of June 30, 2015, that the Company and the Bank met all such capital adequacy requirements to which it is subject.

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In July 2013, the Office of the Comptroller of the Currency (“OCC”) approved new rules on regulatory capital applicable to national banks, implementing Basel III. Most banking organizations were required to apply the new capital rules on January 1, 2015. The final rules set a new common equity tier 1 requirement and higher minimum tier 1 requirements for all banking organizations. They also place limits on capital distributions and certain discretionary bonus payments if a banking organization does not maintain a buffer of common equity tier 1 capital above minimum capital requirements. The rules revise the prompt corrective action framework to incorporate the new regulatory capital minimums. They also enhance risk sensitivity and address weaknesses identified over recent years with the measure of risk-weighted assets, including through new measures of creditworthiness to replace references to credit ratings, consistent with section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The Company’s implementation of the new rules on January 1, 2015 did not have a material impact on our capital needs.

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

	Actual capital ratios					Minimum for capital adequacy					Minimum to be Well Capitalized under prompt corrective action provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
June 30, 2015
Total capital to risk-weighted assets	$	212,021		13.08	%	$	129,658		8.00	%	$	162,073		10.00	%
Tier 1 capital to risk-weighted assets		191,761		11.83	%		97,244		6.00	%		129,658		8.00	%
Common equity tier 1 capital to risk-weighted assets		191,761		11.83	%		72,933		4.50	%		105,347		6.50	%
Tier 1 capital to adjusted average assets (leverage)		191,761		9.95	%		77,107		4.00	%		96,384		5.00	%
December 31, 2014
Total capital to risk-weighted assets	$	201,476		13.25	%	$	121,608		8.00	%	$	152,010		10.00	%
Tier 1 capital to risk-weighted assets		182,469		12.00	%		60,804		4.00	%		91,206		6.00	%
Tier 1 capital to adjusted average assets (leverage)		182,469		9.96	%		73,312		4.00	%		91,640		5.00	%

The Company’s tier 1 leverage, common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios were 10.10%, 12.01%, 12.01% and 13.26%, respectively, at June 30, 2015. The Company’s tier 1 leverage, tier 1 risk-based and total risk-based capital ratios were 10.04%, 12.10% and 13.35%, respectively, at December 31, 2014.

The ability of the Bank to pay dividends to the Company is subject to certain regulatory restrictions. Generally, dividends declared in a given year by a national bank are limited to its net profit, as defined by regulatory agencies, for that year, combined with its retained net income for the preceding two years, less any required transfer to surplus or to fund for the retirement of any preferred stock. In addition, a national bank may not pay dividends in an amount greater than its undivided profits or declare any dividends if such declaration would leave the bank inadequately capitalized.

9. FAIR VALUE

Fair value measurement is determined based on the assumptions that market participants would use in pricing the asset or liability in an exchange. The definition of fair value includes the exchange price which is the price in an orderly transaction between market participants to sell an asset or transfer a liability in the principal market for the asset or liability. Market participant assumptions include assumptions about risk, the risk inherent in a particular valuation technique used to measure fair value and/or the risk inherent in the inputs to the valuation technique, as well as the effect of credit risk on the fair value of liabilities. The Company uses three levels of the fair value inputs to measure assets, as described below.

Basis of Fair Value Measurement:

Level 1 – Valuations based on quoted prices in active markets for identical investments.

Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Level 2 inputs include: (i) quoted prices for similar investments in active markets, (ii) quoted prices for identical investments traded in non-active markets (i.e., dealer or broker markets) and (iii) inputs other than quoted prices that are observable or inputs derived from or corroborated by market data for substantially the full term of the investment.

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Level 3 – Valuations based on inputs that are unobservable, supported by little or no market activity, and significant to the overall fair value measurement.

The types of instruments valued based on quoted market prices in active markets include most U.S. Treasury securities. Such instruments are generally classified within Level 1 and Level 2 of the fair value hierarchy. The Company does not adjust the quoted price for such instruments.

The types of instruments valued based on quoted prices in markets that are not active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency include U.S. Government agency securities, state and municipal obligations, MBS, CMOs and corporate bonds. Such instruments are generally classified within Level 2 of the fair value hierarchy.

The types of instruments valued based on significant unobservable inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability are generally classified within Level 3 of the fair value hierarchy.

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

	Level in		June 30, 2015				December 31, 2014
	Fair Value Hierarchy		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets:
Cash and due from banks	Level 1		$	96,994	$	96,994	$	54,516	$	54,516
Federal funds sold	Level 2			-		-		1,000		1,000
Interest-bearing time deposits in other banks	Level 2			-		-		10,000		10,017
Federal Reserve and Federal Home Loan Bank stock and other investments	N/	A		6,177		N/A		8,600		N/A
Investment securities held to maturity	Level 2			63,618		65,851		62,270		64,796
Investment securities available for sale	Level 2			273,837		273,837		298,670		298,670
Loans held for sale	Level 2			3,132		3,132		26,495		26,495
Loans, net of allowance	Level 2, 3 (1)			1,456,575		1,447,839		1,336,227		1,329,041
Accrued interest and loan fees receivable	Level 2			5,774		5,774		5,676		5,676
Financial Liabilities:
Non-maturity deposits	Level 2			1,475,894		1,475,894		1,337,301		1,337,301
Time deposits	Level 2			242,500		242,927		218,759		219,089
Borrowings	Level 2			65,000		64,845		130,000		130,004
Accrued interest payable	Level 2			186		186		136		136
Derivatives	Level 3			752		752		752		752

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

Fair value estimates are made at a specific point in time and may be based on judgments regarding losses expected in the future, risk, and other factors that are subjective in nature. The methods and assumptions used to produce the fair value estimates follow.

For securities held to maturity and securities available for sale, the fair value equals quoted market price if available. If a quoted market price is not available, fair value is estimated using a quoted market price for similar securities. For cash and due from banks, federal funds sold, accrued interest and loan fees receivable, non-maturity deposits and accrued interest payable, the carrying amount is a reasonable estimate of fair value. Determining the fair value of Federal Reserve and Federal Home Loan Bank stock and other investments is not practicable due to restrictions placed on its transferability. Interest-bearing time deposits in other banks, time deposits and borrowings are valued using a replacement cost of funds approach.

Fair values are estimated for portfolios of loans with similar characteristics. The fair value of performing loans was calculated by discounting projected cash flows through their estimated maturity using market discount rates that reflect the general credit and interest rate characteristics of the loan category. The maturity horizon is based on the Bank’s history of repayments for each type of loan and an estimate of the effect of current economic conditions. Assumptions regarding credit risk, cash flows, and discount rates are made using availablemarket information and specific borrower information.

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Loans identified as impaired are measured using one of three methods: the fair value of collateral less estimated costs to sell, the present value of expected future cash flows or the loan’s observable market price. Those measured using the fair value of collateral or the loan’s observable market price are recorded at fair value. For each period presented, no impaired loans were measured using the loan’s observable market price. If an impaired loan has had a charge-off or if the fair value of the collateral is less than the recorded investment in the loan, the Company establishes a specific reserve and reports the loan as non-recurring Level 3. The fair value of collateral of impaired loans is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

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

During 2013, the Company entered into derivative swap contracts with the purchaser of its Visa Class B shares. The fair value of these derivatives is measured using an internal model that includes the use of probability weighted scenarios for estimates of Visa’s aggregate exposure to the litigation matters, with consideration of amounts funded by Visa into its escrow account for this litigation. At June 30, 2015, the Company estimates a fair value for these derivatives at approximately 10% of the net proceeds from the Company’s sale of the related Visa Class B shares. Since this estimation process requires application of judgment in developing significant unobservable inputs used to determine the possible outcomes and the probability weighting assigned to each scenario, these derivatives have been classified as Level 3 within the valuation hierarchy. (See also Note 3. Investment Securities contained herein.)

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

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

Assets:	June 30, 2015		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Impaired loans	$	3,104	$	3,104
Total	$	3,104	$	3,104

Assets:	December 31, 2014		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Impaired loans	$	3,293	$	3,293
Total	$	3,293	$	3,293

The Company had no liabilities measured at fair value on a non-recurring basis at June 30, 2015 and December 31, 2014.

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

	Fair Value at
Assets:	June 30, 2015		December 31, 2014		Valuation Technique	Unobservable Inputs	Discount
Impaired loans:
Residential mortgages		2,905		3,097	Third party appraisal	Discount to appraised value		25	%	(1	)
Home equity		104		98	Third party appraisal	Discount to appraised value		25	%	(1	)
Consumer		95		98	Third party appraisal	Discount to appraised value		25	%	(2	)
Total	$	3,104	$	3,293

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

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

The following presents fair value measurements on a recurring basis at June 30, 2015 and December 31, 2014 (in thousands):

			Fair Value Measurements Using
Assets:	June 30, 2015		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government agency securities	$	38,238	$	38,238	$	-
Obligations of states and political subdivisions		119,942		119,942		-
Collateralized mortgage obligations		20,569		20,569		-
Mortgage-backed securities		89,088		89,088		-
Corporate bonds		6,000		6,000		-
Total	$	273,837	$	273,837	$	-
Liabilities:
Derivatives		752	$	-	$	752
Total	$	752	$	-	$	752

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

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

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	Liabilities Derivatives		Liabilities Derivatives		Liabilities Derivatives		Liabilities Derivatives
Beginning balance	$	752	$	932	$	752	$	932
Net change		-		-		-		-
Ending balance	$	752	$	932	$	752	$	932

10. LEGAL PROCEEDINGS

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

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

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

11. BORROWINGS

The following summarizes borrowed funds at June 30, 2015 and December 31, 2014 (dollars in thousands):

As of or for the Six Months Ended June 30, 2015	Federal Home Loan Bank Borrowings Short-Term			Federal Home Loan Bank Borrowings Long-Term			Federal Funds Purchased			Total
Daily average outstanding	$	90,050		$	6,547		$	3		$	96,600
Total interest cost		159			57			-			216
Average interest rate paid		0.35	%		1.76	%		0.45	%		0.45	%
Maximum amount outstanding at any month-end	$	155,000		$	15,000		$	-		$	170,000
Ending balance		50,000			15,000			-			65,000
Weighted-average interest rate on balances outstanding		0.34	%		1.76	%		-	%		0.67	%

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As of or for the Year Ended December 31, 2014	Federal Home Loan Bank Borrowings Short-Term			Federal Home Loan Bank Borrowings Long-Term			Federal Funds Purchased			Total
Daily average outstanding	$	13,051		$	-		$	8		$	13,059
Total interest cost		48			-			-			48
Average interest rate paid		0.37	%		-	%		0.46	%		0.37	%
Maximum amount outstanding at any month-end	$	130,000		$	-		$	-		$	130,000
Ending balance		130,000			-			-			130,000
Weighted-average interest rate on balances outstanding		0.32	%		-	%		-	%		0.32	%

Assets pledged as collateral to the Federal Home Loan Bank (“FHLB”), consisting of eligible loans and investment securities, at June 30, 2015 and December 31, 2014 resulted in a maximum borrowing potential of $603 million and $505 million, respectively. The Company had $65 million and $130 million in FHLB borrowings at June 30, 2015 and December 31, 2014, respectively.

ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Safe Harbor Statement Pursuant to the Private Securities Litigation Reform Act of 1995 - Certain statements contained in this discussion are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These can include remarks about the Company, the banking industry, the economy in general, expectations of the business environment in which the Company operates, projections of future performance, and potential future credit experience. These remarks are based upon current management expectations, and may, therefore, involve risks and uncertainties that cannot be predicted or quantified, that are beyond the Company’s control and that could cause future results to vary materially from the Company’s historical performance or from current expectations. These remarks may be identified by such forward-looking statements as “should,” “expect,” “believe,” “view,” “opportunity,” “allow,” “continues,” “reflects,” “typically,” “usually,” “anticipate,” or similar statements or variations of such terms. Factors that could affect the Company include particularly, but are not limited to: increased capital requirements mandated by the Company’s regulators; the Company’s ability to raise capital; competitive factors, including price competition; changes in interest rates; increases or decreases in retail and commercial economic activity in the Company’s market area; variations in the ability and propensity of consumers and businesses to borrow, repay, or deposit money, or to use other banking and financial services; results of regulatory examinations or changes in law, regulations or regulatory practices; the Company’s ability to attract and retain key management and staff; any failure by the Company to maintain effective internal control over financial reporting; larger-than-expected losses from the sale of assets; and the potential that net charge-offs are higher than expected or for further increases in our provision for loan losses. Further, it could take the Company longer than anticipated to implement its strategic plans to increase revenue and manage non-interest expense, or it may not be possible to implement those plans at all. Finally, new and unanticipated legislation, regulation, or accounting standards may require the Company to change its practices in ways that materially change the results of operations. We have no obligation to update any forward-looking statements to reflect events or circumstances after the date of this document. For more information, see the risk factors described in the Company’s Annual Report on Form 10-K and other filings with the Securities and Exchange Commission.

Non-GAAP Disclosure - This discussion includes non-GAAP financial measures of the Company’s tangible common equity (“TCE”)  ratio, tangible common equity, tangible assets, core net income, core FTE net interest income, core FTE net interest margin, core operating expenses, core non-interest income, core FTE non-interest income and core operating efficiency ratio. A non-GAAP financial measure is a numerical measure of historical or future financial performance, financial position or cash flows that excludes or includes amounts that are required to be disclosed in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The Company believes that these non-GAAP financial measures provide both management and investors a more complete understanding of the underlying operational results and trends and the Company’s marketplace performance. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the numbers prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other financial institutions.

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

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

The Bank is a full-service bank serving the needs of its local residents through 27 branch offices in Nassau, Suffolk and Queens Counties, New York and loan production offices in Garden City, Melville and Long Island City. The Bank’s 27 branches include the three opened in Long Island City (2015), Melville (2014) and Garden City (2013). The Bank offers a full line of domestic commercial and retail banking services. The Bank’s primary market area includes all of Suffolk County and the adjacent markets of Nassau County and New York City. The Bank makes commercial real estate floating and fixed rate loans, multifamily and mixed use commercial loans primarily in the boroughs of New York City, commercial and industrial loans to manufacturers, wholesalers, distributors, developers/contractors and retailers and agricultural loans. The Bank also makes loans secured by residential mortgages, and both floating and fixed rate second mortgage loans with a variety of plans for repayment. Real estate construction loans are also offered.

In order to expand the Company geographically into western Suffolk, Nassau and Queens Counties and to diversify the lending business of the Company, loan production offices were opened in Long Island City (2015), Garden City (2013) and Melville (2012). As part of the Company’s strategy to move westward, the loan production office and business banking center branch in Long Island City serves Queens and nearby Brooklyn.

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

Financial Performance Summary

As of or for the quarters and six months ended June 30, 2015 and 2014

(dollars in thousands, except per share data)

	Quarters ended June 30,						Over/ (under)			Six months ended June 30,						Over/ (under)
	2015			2014			2014			2015			2014			2014
Revenue (1)	$	19,871		$	18,220			9.1	%	$	38,479		$	36,610			5.1	%
Operating expenses	$	13,174		$	13,152			0.2	%	$	26,282		$	26,461			(0.7	%)
Provision for loan losses	$	-		$	250			(100.0	%)	$	250		$	500			(50.0	%)
Net income	$	5,118		$	3,771			35.7	%	$	9,127		$	7,491			21.8	%
Net income per common share - diluted	$	0.43		$	0.32			34.4	%	$	0.77		$	0.64			20.3	%
Return on average assets		1.06	%		0.87	%		19	bp		0.96	%		0.88	%		8	bp
Return on average stockholders' equity		10.88	%		8.55	%		233	bp		9.85	%		8.68	%		117	bp
Tier 1 leverage ratio		10.10	%		10.27	%		(17	) bp		10.10	%		10.27	%		(17	) bp
Common equity tier 1 risk-based capital ratio		12.01	%		N/A			N/A			12.01	%		N/A			N/A
Tier 1 risk-based capital ratio		12.01	%		13.28	%		(127	) bp		12.01	%		13.28	%		(127	) bp
Total risk-based capital ratio		13.26	%		14.53	%		(127	) bp		13.26	%		14.53	%		(127	) bp
Tangible common equity ratio (non-GAAP)		9.43	%		10.06	%		(63	) bp		9.43	%		10.06	%		(63	) bp
Total stockholders' equity/total assets (2)		9.57	%		10.21	%		(64	) bp		9.57	%		10.21	%		(64	) bp

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

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

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

equity ratio presented herein.

At June 30, 2015, the Company, on a consolidated basis, had total assets of $2.0 billion, total deposits of $1.7 billion and total stockholders’ equity of $191 million. The Company recorded net income of $5.1 million, or $0.43 per diluted common share, for the second quarter of 2015, compared to $3.8 million, or $0.32 per diluted common share, for the same period in 2014. The 35.7% increase in second quarter 2015 reported earnings versus the comparable 2014 period resulted principally from a $2.3 million increase in net interest income and a $250 thousand reduction in the provision for loan losses. Partially offsetting these improvements was a $628 thousand reduction in non-interest income in 2015. Excluding a second quarter 2015 increase in net non-accrual interest received, a second quarter 2014 gain on the sale of a bank-owned property and a second quarter 2014 expense credit associated with branch consolidation costs previously recorded, core net income increased by 36.3% to $4.4 million in the second quarter of 2015 from $3.2 million in the comparable 2014 period. (See also Non-GAAP Disclosure contained herein.)

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	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2015			2014			2015			2014
CORE NET INCOME:
Net income, as reported	$	5,118		$	3,771		$	9,127		$	7,491
Less:
Gain on sale of branch building and parking lot		-			(104	)		-			(746	)
Branch consolidation credits		-			(279	)		-			(449	)
Net non-accrual interest adjustment		(967	)		(331	)		(974	)		(672	)
Total adjustments, before income taxes		(967	)		(714	)		(974	)		(1,867	)
Adjustment for reported effective income tax rate		(228	)		(155	)		(230	)		(418	)
Total adjustments, after income taxes		(739	)		(559	)		(744	)		(1,449	)
Core net income	$	4,379		$	3,212		$	8,383		$	6,042

The Company’s return on average assets and return on average common stockholders’ equity were 1.06% and 10.88%, respectively, in the second quarter of 2015 versus 0.87% and 8.55%, respectively, in the second quarter of 2014.

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

Thus far in 2015, the Company has experienced a $121 million or 8.9% increase in the total loan portfolio, from $1.355 billion at December 31, 2014 to $1.477 billion at June 30, 2015. Linked-quarter growth was approximately $94 million, from $1.382 billion at March 31, 2015, a 6.8% increase. Total loans at June 30, 2015 represented a 23.5% increase from the comparable 2014 date. As the local economy has improved, loan demand has strengthened in both the Company’s traditional markets on the east end of Long Island, as well as in its new markets in Nassau County and New York City. Notwithstanding the strong loan growth experienced in the second quarter, the Company’s loan pipeline continues to be robust and management remains optimistic about the prospect for continued strong loan growth during the second half of 2015.

The credit quality of the Company’s loan portfolio improved during the second quarter of 2015. As a result of the successful workout of several large relationships during the quarter, total non-accrual loans at June 30, 2015 declined to $5.5 million, or 0.37% of total loans, compared to $12.3 million, or 0.89% of total loans, at March 31, 2015. In addition, since these workouts were completed at or near carrying value, the Company was able to record net recoveries during the quarter of $726 thousand, thereby eliminating the need to take a loan loss provision that otherwise may have been necessary to account for quarterly loan growth. The strategy of working closely with cooperative borrowers who own solid businesses, but who ran into temporary trouble because of events such as Hurricane Sandy, has now been successfully realized. Early delinquencies (30-89 days past due), which are managed aggressively as a harbinger of future credit issues, remain well controlled at $4.6 million, or 0.31% of total loans at June 30, 2015. Given the improved credit profile of the Company’s loan portfolio, as well as the strengthening economic conditions in its markets, management believes the Company is well reserved. The allowance for loan losses at June 30, 2015 was $20.1 million, or 1.36% of total loans and 363% of total non-accrual loans.

The Company’s deposit businesses, which enabled the Company to fund all of its second quarter 2015 loan production through deposit growth, are clearly benefitting from a robust start to the summer season in its traditional markets on the east end of Long Island, including the Hamptons, as well as significant deposit generation coming from new lending customers as the Company expands west. Total deposits grew approximately $127 million during the quarter, from $1.592 billion at March 31, 2015 to $1.718 billion at June 30, 2015, an 8.0% increase. Approximately 66% of the second quarter’s deposit growth came from increases in non-interest bearing demand deposits, which grew $84 million in the quarter, from $682 million on March 31, 2015 to $766 million on June 30, 2015, a 12.3% increase. The Company believes its core deposit franchise is one of the strongest among all community banks, both within the Company’s region and beyond its markets. Core deposits, consisting of demand, N.O.W., savings and money market deposits, totaled $1.5 billion at June 30, 2015, representing 86% of total deposits at that date, with demand deposits representing 45% of total deposits. The deposit product mix continues to be an important strength of the Company and resulted in an exceptionally low average total cost of funds of 18 basis points during the second quarter of 2015.

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The Company’s management continues to work hard to reduce operating expenses and increase efficiency. The expansion strategies that have resulted in the strong financial performance of the last few years require significant investment, particularly in technology upgrades, office space as the Company moves west, regulatory resources and, most importantly, attracting the best lending and credit professionals to drive performance. Nevertheless, management has been successful in finding ways to fund these investments by reducing expenses in other areas. Total operating expenses of $13.2 million incurred in the second quarter of 2015 were flat compared to the comparable quarter a year ago, notwithstanding the significant revenue enhancing investments that were funded during the last year, such as costs associated with opening the Long Island City loan production office. This improvement in operating leverage translated into a reduction in our core operating efficiency ratio during the second quarter to 66.3%, from 70.7% in the comparable quarter in 2014. (See also Non-GAAP Disclosure contained herein.) As the Company moves forward, management will continue to balance the need for investment to generate revenue with expense reductions in other areas. The Company’s management has proven its ability to do this and believes it will build shareholder value over the long term.

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2015			2014			2015			2014
Core operating expenses:
Total operating expenses	$	13,174		$	13,152		$	26,282		$	26,461
Adjust for branch consolidation credits		-			279			-			449
Core operating expenses		13,174			13,431			26,282			26,910
Core non-interest income:
Total non-interest income		2,050			2,678			4,141			5,770
Adjust for gain on sale of branch building and parking lot		-			(104	)		-			(746	)
Core non-interest income		2,050			2,574			4,141			5,024
Adjust for tax-equivalent basis		198			220			400			432
Core FTE non-interest income		2,248			2,794			4,541			5,456
Core net interest income:
FTE net interest income		18,760			16,522			36,255			32,795
Net non-accrual interest adjustment		(967	)		(331	)		(974	)		(672	)
Core FTE net interest income		17,793			16,191			35,281			32,123
Core operating efficiency ratio:
Core operating expenses		13,174			13,431			26,282			26,910
Core FTE net interest income		17,793			16,191			35,281			32,123
Core FTE non-interest income		2,248			2,794			4,541			5,456
Less net gain (loss) on sale of securities available for sale		(160	)		23			(186	)		23
Total FTE revenue		19,881			19,008			39,636			37,602
Core operating expenses/total FTE revenue		66.26	%		70.66	%		66.31	%		71.57	%

Critical Accounting Policies, Judgments and Estimates - The Company’s accounting and reporting policies conform to U.S. GAAP and general practices within the banking industry. The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.

Allowance for Loan Losses - One  of  the  most  critical  accounting policies impacting the Company’s financial statements is the evaluation of the allowance for loan losses. The allowance for loan losses is a valuation allowance for probable incurred losses, increased by the provision for loan losses and recoveries, and decreased by loan charge-offs. For all classes of loans, when a loan, in full or in part, is deemed uncollectible, it is charged against the allowance for loan losses. This happens when the loan is past due and the borrower has not shown the ability or intent to make the loan current, or the borrower does not have sufficient assets to pay the debt, or the value of the collateral is less than the balance of the loan and is not considered likely to improve soon. The allowance for loan losses is determined by a quarterly analysis of the loan portfolio. Such analysis includes changes in the size and composition of the portfolio, the Company’s own historical loan losses, industry-wide losses, current and anticipated economic trends, and details about individual loans. It also includes estimates of the actual value of collateral, other possible sources of repayment and estimates that are susceptible to significant changes due to changes in appraisal values of collateral, national and regional economic conditions and other relevant factors. All non-accrual loans over $250 thousand in the commercial and industrial, commercial real estate and real estate construction loan classes and all troubled debt restructurings (“TDRs”) are evaluated individually for impairment. All other loans are generally evaluated as homogeneous pools with similar risk characteristics. In assessing the adequacy of the allowance for loan losses, management reviews the loan portfolio by separate classes that have similar risk and collateral characteristics. These classes are commercial and industrial, commercial real estate, multifamily, mixed use commercial, real estate construction, residential mortgages, home equity and consumer loans.

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The allowance for loan losses consists of specific and general components, as well as an unallocated component. The specific component relates to loans that are individually classified as impaired. Specific reserves are established based on an analysis of the most probable sources of repayment or liquidation of collateral. Impaired loans that are collateral dependent are reviewed based on the fair market value of collateral and the estimated time required to recover the Company’s investment in the loans, as well as the cost of doing so, and the estimate of the recovery. Non-collateral dependent impaired loans are reviewed based on the present value of estimated future cash flows, including balloon payments, if any, using the loan’s effective interest rate. While every impaired loan is evaluated individually, not every loan requires a specific reserve. Specific reserves fluctuate based on changes in the underlying loans, anticipated sources of repayment, and charge-offs. The general component covers non-impaired loans and is based on historical loss experience for each loan class from a rolling twelve quarter period and modifying those percentages, if necessary, after adjusting for current qualitative and environmental factors that reflect changes in the estimated collectability of the loan class not captured by historical loss data. These factors augment actual loss experience and help estimate the probability of loss within the loan portfolio based on emerging or inherent risk trends. These qualitative factors are applied as an adjustment to historical loss rates and require judgments that cannot be subjected to exact mathematical calculation. These adjustments reflect management’s overall estimate of the extent to which current losses on a pool of loans will differ from historical loss experience. These adjustments are subjective estimates and management reviews them on a quarterly basis. TDRs are also considered impaired with impairment generally measured at the present value of estimated future cash flows using the loan’s effective interest rate at inception or using the fair value of collateral, less estimated costs to sell, if repayment is expected solely from the collateral. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

Deferred Tax Assets and Liabilities – Deferred tax assets and liabilities are the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities, computed using enacted tax rates. Deferred tax assets are recognized if it is more likely than not that a future benefit will be realized. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.  The realization of deferred tax assets (net of a recorded valuation allowance) is largely dependent upon future taxable income, future reversals of existing taxable temporary differences and the ability to carryback losses to available tax years. In assessing the need for a valuation allowance, the Company considers all relevant positive and negative evidence, including taxable income in carryback years, scheduled reversals of deferred tax liabilities, expected future taxable income and available tax planning strategies.

Other-Than-Temporary Impairment (“OTTI”) of Investment Securities – Management evaluates securities for OTTI on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the statement of income and 2) OTTI related to other factors, which is recognized in other comprehensive income (loss). The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

Material Changes in Financial Condition - Total assets of the Company were $2.0 billion at June 30, 2015. When compared to December 31, 2014, total assets increased by $103 million. This change was primarily due to loan growth and an increase in total cash and cash equivalents of $121 million and $41 million, respectively, partially offset by decreases in loans held for sale, investment securities available for sale and interest-bearing time deposits in other banks of $23 million, $25 million and $10 million, respectively.

Total loans were $1.477 billion at June 30, 2015 compared to $1.355 billion at December 31, 2014. The increase in the loan portfolio was primarily due to growth of commercial and industrial, commercial real estate, multifamily and mixed use commercial loans of $19 million, $38 million, $52 million and $16 million, respectively, in the first half of 2015.

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The decrease in loans held for sale reflected the sale of $24 million in multifamily loans, at a premium, in the first quarter of 2015. Total investment securities available for sale were $274 million at June 30, 2015 and $299 million at December 31, 2014. The decrease in available for sale securities largely reflected maturities and calls of municipal obligations and U.S. Government agency securities totaling $21 million, coupled with principal paydowns of collateralized mortgage obligations and mortgage-backed securities of U.S. Government-sponsored enterprises totaling $3 million and sales of corporate bonds and municipal obligations totaling $7 million for the first six months of 2015. These decreases were partially offset by purchases of corporate bonds and municipal obligations totaling $7 million during the same period. The interest rate environment had a negative impact of $876 thousand on the fair value of the Company’s available for sale investment portfolio at June 30, 2015 compared to year-end 2014.

At June 30, 2015, total deposits were $1.7 billion, an increase of $162 million when compared to December 31, 2014. This increase was primarily due to higher balances of demand, savings, N.O.W. and money market deposits of $83 million, $11 million, $9 million and $35 million, respectively. Additionally, time deposit balances increased $24 million over the same period. Core deposit balances, which consist of demand, savings, N.O.W. and money market deposits, represented 86% of total deposits at June 30, 2015 and December 31, 2014. Demand deposit balances represented 45% and 44% of total deposits at June 30, 2015 and December 31, 2014, respectively. At June 30, 2015 and December 31, 2014, the Company had $65 million and $130 million, respectively, in borrowings used to fund the growth in the Company’s loan portfolio. The 2015 amount includes $15 million in five-year FHLB borrowings with a fixed rate of 1.76%.

Liquidity and Capital Resources - Liquidity management is defined as both the Company’s and the Bank’s ability to meet their financial obligations on a continuous basis without material loss or disruption of normal operations. These obligations include the withdrawal of deposits on demand or at their contractual maturity, the repayment of borrowings as they mature, funding new and existing loan commitments and the ability to take advantage of business opportunities as they arise. Asset liquidity is provided by short-term investments and the marketability of securities available for sale. The Company may also leave excess reserve balances at the Federal Reserve Bank (“FRB”) if the rate being paid is higher than would be available from other short-term investments. Liquid assets, consisting of federal funds sold, securities available for sale and balances at the FRB, decreased to $291 million at June 30, 2015 compared to $311 million at December 31, 2014. These liquid assets may include assets that have been pledged primarily against municipal deposits or borrowings. In addition, the Company has pledged U.S. Government agency securities held in its available for sale portfolio, with a market value of approximately $3 million at June 30, 2015, as collateral for the derivative swap contracts. Liquidity is also provided by the maintenance of a base of core deposits, maturing short-term assets including cash and due from banks, the ability to sell or pledge marketable assets and access to lines of credit.

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

The Company’s primary sources of funds are cash provided by deposits and borrowings, proceeds from maturities and sales of securities available for sale and cash provided by operating activities. At June 30, 2015, total deposits were $1.7 billion, an increase of $162 million when compared to December 31, 2014. Of the $243 million in total time deposits at June 30, 2015, $187 million are scheduled to mature within the next 12 months. Based on historical experience, the Company expects to be able to replace a substantial portion of those maturing deposits with comparable deposit products. At June 30, 2015 and December 31, 2014, the Company had $65 million and $130 million, respectively, in borrowings used to fund the growth in the Company's loan portfolio. For the six months ended June 30, 2015 and 2014, proceeds from sales and maturities of securities available for sale totaled $28 million and $33 million, respectively.

The Company’s primary uses of funds are for the origination of loans and the purchase of investment securities. For the six months ended June 30, 2015, the Company had net loan originations for portfolio of $121 million compared to $126 million for the same period in 2014. For the six months ended June 30, 2015 and 2014, the Company purchased investment securities totaling $10 million and $4 million, respectively.

The Bank’s Asset/Liability and Funds Management Policy establishes specific policies and operating procedures governing liquidity levels to assist management in developing plans to address future and current liquidity needs. Management monitors the rates and cash flows from the loan and investment portfolios while also examining the maturity structure and volatility characteristics of liabilities to develop an optimum asset/liability mix. Available funding sources include retail, commercial and municipal deposits, purchased liabilities and stockholders’ equity. At June 30, 2015, access to approximately $603 million in FHLB lines of credit for overnight or term borrowings with maturities of up to thirty years was available. At June 30, 2015, approximately $60 million and $10 million in unsecured and secured lines of credit, respectively, extended by correspondent banks were also available to be utilized, if needed, for short-term funding purposes. At June 30, 2015, $65 million in borrowings were outstanding with the FHLB. No borrowings were outstanding under lines of credit with correspondent banks.

33

The Bank also has the ability to access the brokered deposit market. Deposits gathered through the Certificate of Deposit Account Registry Service (“CDARS”) are considered for regulatory purposes to be brokered deposits. At June 30, 2015, the Bank had $2 million in CDARS deposits outstanding.

The Company strives to maintain an efficient level of capital, commensurate with its risk profile, on which a competitive rate of return to stockholders will be realized over both the short and long term. Capital is managed to enhance stockholder value while providing flexibility for management to act opportunistically in a changing marketplace. Management continually evaluates the Company’s capital position in light of current and future growth objectives and regulatory guidelines. Total stockholders’ equity was $191 million at June 30, 2015 compared to $183 million at December 31, 2014. The increase in stockholders’ equity versus December 31, 2014 was primarily due to net income, net of dividends paid, recorded during 2015.

The Company and the Bank are subject to regulatory capital requirements. The Company’s tier 1 leverage, common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios were 10.10%, 12.01%, 12.01% and 13.26%, respectively, at June 30, 2015. The Company’s capital ratios exceeded all regulatory requirements at June 30, 2015. The Bank’s tier 1 leverage, common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios were 9.95%, 11.83%, 11.83% and 13.08%, respectively, at June 30, 2015. Each of these ratios exceeds the regulatory guidelines for a well-capitalized institution, the highest regulatory capital category.

The Company did not repurchase any shares of its common stock during the first half of 2015. Repurchase of shares will occur only if management believes that the purchase will be at prices that are accretive to earnings per share and is the most efficient use of the Company’s capital.

The Company’s tangible common equity ratio was 9.43% at June 30, 2015 compared to 9.50% at December 31, 2014 and 10.06% at June 30, 2014. The ratio of tangible common equity to tangible assets, or TCE ratio, is calculated by dividing total common stockholders’ equity by total assets, after reducing both amounts by intangible assets. The TCE ratio is not required by U.S. GAAP or by applicable bank regulatory requirements, but is a metric used by management to evaluate the adequacy of our capital levels. Since there is no authoritative requirement to calculate the TCE ratio, our TCE ratio is not necessarily comparable to similar capital measures disclosed or used by other companies in the financial services industry. Tangible common equity and tangible assets are non-GAAP financial measures and should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with U.S. GAAP. Set forth below are the reconciliations of tangible common equity to U.S. GAAP total common stockholders’ equity and tangible assets to U.S. GAAP total assets at June 30, 2015 (in thousands). (See also Non-GAAP Disclosure contained herein.)

								Ratios
Total stockholders' equity	$	191,151		Total assets	$	1,998,220			9.57	%	(1)
Less: intangible assets		(2,992	)	Less: intangible assets		(2,992	)
Tangible common equity	$	188,159		Tangible assets	$	1,995,228			9.43	%	(2)

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

tangible common equity ratio presented herein.

(2) TCE ratio.

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

34

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

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the customer. Collateral required varies, but may include accounts receivable, inventory, equipment, real estate and income-producing commercial properties. At June 30, 2015 and December 31, 2014, commitments to originate loans and commitments under unused lines of credit for which the Bank is obligated amounted to approximately $147 million and $180 million, respectively.

Letters of credit are conditional commitments guaranteeing payments of drafts in accordance with the terms of the letter of credit agreements. Commercial letters of credit are used primarily to facilitate trade or commerce and are also issued to support public and private borrowing arrangements, bond financing and similar transactions. Collateral may be required to support letters of credit based upon management’s evaluation of the creditworthiness of each customer. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Most letters of credit expire within one year. At June 30, 2015 and December 31, 2014, letters of credit outstanding were approximately $16 million and $17 million, respectively.

Material Changes in Results of Operations – Comparison of the Quarters Ended June 30, 2015 and 2014 - The Company recorded net income of $5.1 million during the second quarter of 2015 versus $3.8 million in the comparable year ago period. The 35.7% improvement in second quarter 2015 net income resulted from a $2.3 million increase in net interest income and a $250 thousand reduction in the provision for loan losses in 2015 versus the comparable 2014 period. Partially offsetting these improvements was a $628 thousand reduction in non-interest income in 2015 versus 2014. The Company’s effective tax rate increased to 23.6% in 2015 from 21.7% a year ago.

The $2.3 million or 14.7% improvement in second quarter 2015 net interest income resulted from a $184 million increase in average total interest-earning assets along with an eight basis point widening of the Company’s net interest margin to 4.21% in 2015 from 4.13% in 2014. Adjusting for the impact of net non-accrual interest received in each period, the Company’s core net interest margin was 3.99% in the second quarter of 2015 versus 4.05% in the second quarter of 2014. (See also Non-GAAP Disclosure contained herein.)

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Core net interest margin:
FTE net interest margin		4.21	%		4.13	%		4.11	%		4.17	%
Net non-accrual interest adjustment		(0.22	)		(0.08	)		(0.11	)		(0.09	)
Core FTE net interest margin		3.99	%		4.05	%		4.00	%		4.08	%

The Company’s second quarter 2015 average total interest-earning asset yield was 4.38% versus 4.29% in the comparable 2014 quarterly period. The improvement in the interest-earning asset yield in 2015 was due in part to the receipt of $967 thousand in interest income on loans previously on non-accrual status.The Company’s average balance sheet mix continued to improve as average loans increased by $269 million (23.5%) versus second quarter 2014 and low-yielding overnight interest-bearing deposits, federal funds sold and securities purchased under agreements to resell declined by $29 million (59.5%) during the same period. Federal funds sold, securities purchased under agreements to resell and interest-bearing deposits represented 1% of average total interest-earning assets in the second quarter of 2015 versus 3% a year ago. The average securities portfolio decreased by $59 million to $348 million in the second quarter of 2015 versus the comparable 2014 period. The average yield on the investment portfolio was 3.77% in the second quarter of 2015 versus 3.71% a year ago.

The Company’s average cost of total interest-bearing liabilities increased by two basis points to 0.30% in the second quarter of 2015 versus 0.28% in the second quarter of 2014. The Company’s total cost of funds, among the lowest in the industry, increased nominally to 0.18% in the second quarter of 2015 versus 0.16% a year ago. Average core deposits increased $118 million to $1.4 billion during the second quarter of 2015 versus the comparable 2014 period, with average demand deposits representing 44% of second quarter 2015 average total deposits. Total deposits increased by $150 million or 9.6% to $1.7 billion at June 30, 2015 versus June 30, 2014. Core deposit balances, which represented 86% of total deposits at June 30, 2015, grew by $137 million or 10.2% during the same period. Average borrowings increased $64 million during the second quarter of 2015 compared to 2014 and were used, in part, to fund the growth in the Company’s loan portfolio, which increased by $269 million on average during that same period.

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NET INTEREST INCOME ANALYSIS

For the Three Months Ended June 30, 2015 and 2014

(unaudited, dollars in thousands)

	2015								2014
	Average Balance		Interest			Average Yield/Cost			Average Balance		Interest			Average Yield/Cost
Assets:
Interest-earning assets:
Investment securities (1)	$	347,895	$	3,269			3.77	%	$	406,732	$	3,758			3.71	%
Federal Reserve and Federal Home Loan Bank stock and other investments		6,274		90			5.75			3,442		35			4.08
Federal funds sold, securities purchased under agreements to resell and interest-bearing deposits due from banks		20,072		20			0.40			49,562		42			0.34
Loans (2)		1,413,177		16,136			4.58			1,144,006		13,316			4.67
Total interest-earning assets		1,787,418	$	19,515			4.38	%		1,603,742	$	17,151			4.29	%
Non-interest-earning assets		149,720								131,559
Total assets	$	1,937,138							$	1,735,301
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings, N.O.W. and money market deposits	$	700,875	$	294			0.17	%	$	655,367	$	287			0.18	%
Time deposits		233,757		353			0.61			232,235		337			0.58
Total savings and time deposits		934,632		647			0.28			887,602		624			0.28
Borrowings		69,391		108			0.62			5,878		5			0.35
Total interest-bearing liabilities		1,004,023		755			0.30			893,480		629			0.28
Demand deposits		721,907								648,957
Other liabilities		22,603								16,015
Total liabilities		1,748,533								1,558,452
Stockholders' equity		188,605								176,849
Total liabilities and stockholders' equity	$	1,937,138							$	1,735,301
Total cost of funds							0.18	%							0.16	%
Net interest rate spread							4.08	%							4.01	%
Net interest income/margin				18,760			4.21	%				16,522			4.13	%
Less tax-equivalent basis adjustment				(939	)							(980	)
Net interest income			$	17,821							$	15,542

(1) Interest on securities includes the effects of tax-equivalent basis adjustments of $798 and $867 in 2015 and 2014, respectively.

(2) Interest on loans includes the effects of tax-equivalent basis adjustments of $141 and $113 in 2015 and 2014, respectively.

Primarily as a result of recording $726 thousand in net recoveries, the Company did not record a provision for loan losses during the second quarter of 2015. The Company recorded a provision for loan losses of $250 thousand in the second quarter of 2014. The adequacy of the provision and the resulting allowance for loan losses, which was $20.1 million at June 30, 2015, is determined by management’s ongoing review of the loan portfolio, including identification and review of individual problem situations that may affect a borrower’s ability to repay, delinquency and non-performing loan data including the current status of criticized and classified loans, collateral values and changes in the size and mix of the loan portfolio. (See also Critical Accounting Policies, Judgments and Estimates and Asset Quality contained herein.)

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Non-interest income declined by $628 thousand or 23.5% in the second quarter of 2015 versus the comparable 2014 period.  This reduction was due to several factors, most notably reductions in fiduciary fees (down $280 thousand), other service charges, commissions and fees (down $212 thousand), service charges on deposits (down $121 thousand) and net gain on sale of premises and equipment (down $110 thousand). Fiduciary fees declined as a result of the Company’s decision to exit the wealth management market during the fourth quarter of 2014 through the sale of its wealth management business. Other service charges, commissions and fees were lower than the comparable 2014 period principally due to a reduction in income from the sale of investment products through the Company’s branch network. Deposit service charges declined due to a reduction in overdraft fees in 2015. The reduction in net gain on the sale of premises and equipment resulted from a $104 thousand pre-tax gain recorded in 2014 on the sale of a Company-owned parking lot adjacent to the main office. Excluding the impact of the wealth management sale and the gain on the parking lot recorded in 2014, non-interest income declined by $244 thousand or 10.6% in 2015.  Partially offsetting the foregoing reductions in non-interest income was an increase in net gain on the sale of securities available for sale (up $183 thousand).

Non-Interest Income

For the quarters and six months ended June 30, 2015 and 2014

(dollars in thousands)

	Quarters ended June 30,					Over/ (under)				Six months ended June 30,					Over/ (under)
	2015		2014			2014				2015		2014			2014
Service charges on deposit accounts	$	823	$	944			(12.8	)	%	$	1,570	$	1,947			(19.4	)	%
Other service charges, commissions and fees		680		892			(23.8	)			1,273		1,571			(19.0	)
Fiduciary fees		-		280			(100.0	)			-		559			(100.0	)
Net gain (loss) on sale of securities available for sale		160		(23	)		N/M		(1)		186		(23	)		N/M		(1)
Net gain on sale of portfolio loans		-		-			-				198		-			N/M		(1)
Net gain on sale of mortgage loans originated for sale		61		70			(12.9	)			205		163			25.8
Net gain on sale of premises and equipment		-		110			(100.0	)			-		752			(100.0	)
Income from bank owned life insurance		303		366			(17.2	)			612		720			(15.0	)
Other operating income		23		39			(41.0	)			97		81			19.8
Total non-interest income	$	2,050	$	2,678			(23.5	)	%	$	4,141	$	5,770			(28.2	)	%

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

A nominal $22 thousand increase in total operating expenses in the second quarter of 2015 versus 2014 was principally the result of a $279 thousand expense credit recorded in 2014 related to prior period branch closures. Excluding this credit, total operating expenses declined by $257 thousand or 1.9% in the second quarter of 2015 versus the comparable 2014 period. The Company’s core operating efficiency ratio improved to 66.3% in the second quarter of 2015 from 70.7% a year ago. The core operating efficiency ratio is calculated by making certain adjustments to the operating efficiency ratio calculation. The core operating efficiency ratio is not required by U.S. GAAP or by applicable bank regulatory requirements, but is a metric used by management to evaluate core operating efficiency. Since there is no authoritative requirement to calculate this ratio, our ratio is not necessarily comparable to similar efficiency measures disclosed or used by other companies in the financial services industry. The core operating efficiency ratio is a non-GAAP financial measure and should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with U.S. GAAP. The calculation of the core operating efficiency ratio, the reconciliation of core operating expenses to U.S. GAAP total operating expenses, core non-interest income to U.S. GAAP total non-interest income and core FTE net interest income to FTE net interest income are provided elsewhere herein. (See also Non-GAAP Disclosure contained herein.)

37

Operating Expenses

For the quarters and six months ended June 30, 2015 and 2014

(dollars in thousands)

	Quarters ended June 30,					Over/ (under)			Six months ended June 30,					Over/ (under)
	2015		2014			2014			2015		2014			2014
Employee compensation and benefits	$	8,516	$	8,488			0.3	%	$	17,122	$	17,349			(1.3	)%
Occupancy expense		1,373		1,411			(2.7	)		2,835		2,846			(0.4	)
Equipment expense		404		434			(6.9	)		789		883			(10.6	)
Consulting and professional services		544		639			(14.9	)		882		1,190			(25.9	)
FDIC assessment		286		268			6.7			576		535			7.7
Data processing		514		559			(8.1	)		1,084		1,132			(4.2	)
Branch consolidation credits		-		(279	)		(100.0	)		-		(449	)		(100.0	)
Other operating expenses		1,537		1,632			(5.8	)		2,994		2,975			0.6
Total operating expenses	$	13,174	$	13,152			0.2	%	$	26,282	$	26,461			(0.7	)%

The Company recorded income tax expense of $1.6 million in the second quarter of 2015 resulting in an effective tax rate of 23.6% versus an income tax expense of $1.0 million and an effective tax rate of 21.7% in the comparable period a year ago.

Material Changes in Results of Operations – Comparison of the Six Months Ended June 30, 2015 and 2014 – The Company recorded net income of $9.1 million during the first six months of 2015 versus $7.5 million in the comparable 2014 period.  The improvement in 2015 net income resulted principally from a $3.5 million increase in net interest income in the first half of 2015 coupled with a $250 thousand reduction in the provision for loan losses and a $179 thousand decline in total operating expenses. Partially offsetting these positive factors was a $1.6 million reduction in non-interest income and an increase in the Company’s effective tax rate in 2015.

The $3.5 million or 11.3% improvement in June year-to-date 2015 net interest income resulted from a $191 million increase in average total interest-earning assets, offset in part by a six basis point contraction of the Company’s net interest margin to 4.11% in 2015 from 4.17% in 2014. The Company’s June year-to-date 2015 average total interest-earning asset yield was 4.28% versus 4.33% in the comparable 2014 year-to-date period. A lower average yield on the Company’s loan portfolio in the first half of 2015 versus the comparable 2014 period, down 28 basis points to 4.47%, was the primary driver of the reduction in the interest-earning asset yield.  The Company’s average balance sheet mix continued to improve as average loans increased by $277 million (24.8%) versus June year-to-date 2014 and low-yielding overnight interest-bearing deposits, federal funds sold and securities purchased under agreements to resell declined by $32 million (58.0%) during the same period. The average securities portfolio decreased by $57 million to $354 million in the first half of 2015 versus the comparable 2014 period. The average yield on the investment portfolio was 3.79% in the 2015 period versus 3.73% a year ago.

The Company’s average cost of total interest-bearing liabilities decreased by one basis point to 0.28% in the first six months of 2015 versus 0.29% in the comparable 2014 period. The Company’s total cost of funds was unchanged at 0.17% in the first half of 2015 versus 2014. Average core deposits increased by $99 million to $1.4 billion during the first six months of 2015 versus the comparable 2014 period, with average demand deposits representing 43% of year-to-date 2015 average total deposits. Average total deposits increased by $94 million or 6.2% to $1.6 billion during the first half of 2015 versus 2014. Average core deposit balances represented 86% of average total deposits during the same period. Average borrowings increased by $94 million during the first half of 2015 compared to 2014 and represented 6% of total average funding during the June 2015 year-to-date period.

38

NET INTEREST INCOME ANALYSIS

For the Six Months Ended June 30, 2015 and 2014

(unaudited, dollars in thousands)

	2015								2014
	Average Balance		Interest			Average Yield/Cost			Average Balance		Interest			Average Yield/Cost
Assets:
Interest-earning assets:
Investment securities (1)	$	353,622	$	6,647			3.79	%	$	411,035	$	7,608			3.73	%
Federal Reserve and Federal Home Loan Bank stock and other investments		7,299		150			4.14			3,155		73			4.67
Federal funds sold, securities purchased under agreements to resell and interest-bearing deposits due from banks		23,101		43			0.38			55,026		88			0.32
Loans (2)		1,392,884		30,846			4.47			1,116,283		26,292			4.75
Total interest-earning assets		1,776,906	$	37,686			4.28	%		1,585,499	$	34,061			4.33	%
Non-interest-earning assets		144,441								129,944
Total assets	$	1,921,347							$	1,715,443
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings, N.O.W. and money market deposits	$	694,785	$	568			0.16	%	$	662,116	$	579			0.18	%
Time deposits		224,510		647			0.58			229,229		682			0.60
Total savings and time deposits		919,295		1,215			0.27			891,345		1,261			0.29
Borrowings		96,600		216			0.45			2,955		5			0.35
Total interest-bearing liabilities		1,015,895		1,431			0.28			894,300		1,266			0.29
Demand deposits		695,407								629,100
Other liabilities		23,261								18,007
Total liabilities		1,734,563								1,541,407
Stockholders' equity		186,784								174,036
Total liabilities and stockholders' equity	$	1,921,347							$	1,715,443
Total cost of funds							0.17	%							0.17	%
Net interest rate spread							4.00	%							4.04	%
Net interest income/margin				36,255			4.11	%				32,795			4.17	%
Less tax-equivalent basis adjustment				(1,917	)							(1,955	)
Net interest income			$	34,338							$	30,840

(1) Interest on securities includes the effects of tax-equivalent basis adjustments of $1,635 and $1,743 in 2015 and 2014, respectively.

(2) Interest on loans includes the effects of tax-equivalent basis adjustments of $282 and $212 in 2015 and 2014, respectively.

Largely due to a combination of improved credit metrics coupled with $601 thousand in 2015 year-to-date net recoveries, the Company’s provision for loan losses declined by $250 thousand during the first six months of 2015 versus the comparable 2014 period.

Non-interest income declined by $1.6 million or 28.2% in the June 2015 year-to-date period when compared to 2014.  This reduction was due to several factors, most notably reductions in net gain on sale of premises and equipment (down $752 thousand), fiduciary fees (down $559 thousand), service charges on deposit accounts (down $377 thousand) and other service charges, commissions and fees (down $298 thousand). The reduction in net gain on the sale of premises and equipment resulted from gains recorded in 2014 on the sale of two bank properties. Fiduciary fees declined as a result of the Company’s sale of its wealth management business in late 2014. Deposit service charges declined principally due to a reduction in overdraft fees in 2015. Other service charges, commissions and fees were lower than the comparable 2014 period primarily as the result of a reduction in income from the sale of investment products through the Company’s branch network. Partially offsetting the foregoing reductions in non-interest income were increases in net gain on the sale of securities available for sale (up $209 thousand) and net gain on the sale of portfolio loans (up $198 thousand).

39

Total operating expenses declined by $179 thousand in the first half of 2015 versus 2014 as the result of reductions in several categories, most notably consulting and professional services (down $308 thousand) and employee compensation and benefits (down $227 thousand). Excluding a $449 thousand branch consolidation expense credit recorded in the June 2014 year-to-date period, total operating expenses would have declined by $628 thousand or 2.3% in 2015 when compared to 2014. The Company’s core operating efficiency ratio improved to 66.3% in the first six months of 2015 from 71.6% a year ago. (See also Non-GAAP Disclosure contained herein.)

The Company recorded income tax expense of $2.8 million in the year-to-date June 2015 period resulting in an effective tax rate of 23.6% versus an income tax expense of $2.2 million and an effective tax rate of 22.4% in the comparable period a year ago.The increase primarily related to the change in the federal tax rate from 34% to 35% based on the federal tax rates expected to be in effect during the periods in which the temporary differences reverse. Partially offsetting the federal rate increase was the net New York City deferred tax benefit resulting from the opening of the Long Island City office.

Asset Quality - Non-accrual loans totaled $5.5 million or 0.37% of loans outstanding at June 30, 2015 versus $13.0 million or 0.96% of total loans outstanding at December 31, 2014 and $13.9 million or 1.16% of loans outstanding at June 30, 2014. The allowance for loan losses as a percentage of total non-accrual loans amounted to 363%, 148% and 133% at June 30, 2015, December 31, 2014 and June 30, 2014, respectively.

The Company had no loans 90 days or more past due and still accruing at any of the reported dates. Total loans 30 - 89 days past due and accruing amounted to $4.6 million or 0.31% of loans outstanding at June 30, 2015 as compared to $1.4 million or 0.10% of loans outstanding at December 31, 2014 and $4.3 million or 0.36% of loans outstanding at June 30, 2014. The Company held no OREO during any of the reported periods.

Total criticized and classified loans were $33 million at June 30, 2015 versus $40 million at December 31, 2014 and $44 million at June 30, 2014. Criticized loans are those loans that are not classified but require some degree of heightened monitoring. Classified loans were $18 million at June 30, 2015 as compared to $30 million at December 31, 2014 and $34 million at June 30, 2014. The allowance for loan losses as a percentage of total classified loans was 114%, 64% and 55%, respectively, at the same dates.

At June 30, 2015, the Company had $13 million in TDRs, primarily consisting of commercial and industrial loans, commercial real estate loans and residential mortgages totaling $2 million, $5 million and $4 million, respectively. The Company had TDRs amounting to $20 million at December 31, 2014 and $22 million at June 30, 2014.

The Company recorded net loan recoveries of $726 thousand in the second quarter of 2015 versus net loan charge-offs of $125 thousand in the first quarter of 2015 and net loan recoveries of $491 thousand in the second quarter of 2014. As a percentage of average total loans outstanding, these net amounts represented, on an annualized basis, (0.21%) for the second quarter of 2015, 0.04% for the first quarter of 2015 and (0.17%) for the second quarter of 2014.

40

At June 30, 2015, the Company’s allowance for loan losses amounted to $20.1 million or 1.36% of period-end loans outstanding. The allowance as a percentage of loans outstanding was 1.42% and 1.55% at December 31, 2014 and June 30, 2014, respectively.

Primarily as a result of recording $726 thousand in net recoveries, the Company did not record a provision for loan losses during the second quarter of 2015. The Company recorded a provision for loan losses of $250 thousand in the second quarter of 2014.

For the three months ended June 30, 2015, the ending balance of the Company’s allowance for loan losses increased by $726 thousand when compared to March 31, 2015. During the second quarter of 2015, the Company increased its allowance for loan losses allocated to commercial and industrial (“C&I”) loans by $75 thousand and decreased its allowance for loan losses allocated to commercial real estate (“CRE”) and multifamily loans by $1.4 million and $402 thousand, respectively.

The increase in the allowance for loan losses allocated to C&I loans was primarily due to an increase of $17 million in unimpaired pass rated C&I loans, partially offset by a 0.11% decrease versus March 31, 2015 in the average combined historical loss and environmental factors rates on such unimpaired pass rated loans. The decreases in the allowance for loan losses allocated to CRE and multifamily loans during the second quarter of 2015 largely reflected a decrease of 0.26% in the average combined historical loss and environmental factors rates on both unimpaired pass rated CRE and multifamily loans, partially offset by increases of $29 million and $39 million, respectively, in unimpaired pass rated CRE and multifamily loans.

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

At June 30, 2015, the Company’s allowance for loan losses included an unallocated portion totaling $3.6 million. For the three months ended June 30, 2015, the ending balance of the Company’s unallocated portion of the allowance for loan losses increased $2.2 million versus March 31, 2015. Loan portfolio growth was 6.8% during the second quarter of 2015, primarily in multifamily and CRE loans. Loan growth, including multifamily loans, is expected to continue throughout 2015. An unallocated portion of the reserve is considered a prudent strategy until these loans to new borrowers establish longer-term payment patterns.

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

41

ANALYSIS OF NON-PERFORMING ASSETS

AND THE ALLOWANCE FOR LOAN LOSSES

June 30, 2015 versus December 31, 2014 and June 30, 2014

(dollars in thousands)

NON-PERFORMING ASSETS BY TYPE:
	At
	6/30/2015			12/31/2014			6/30/2014
Non-accrual loans	$	5,529		$	12,981		$	13,911
Non-accrual loans held for sale		-			-			-
Loans 90 days or more past due and still accruing		-			-			-
OREO		-			-			-
Total non-performing assets	$	5,529		$	12,981		$	13,911
Gross loans outstanding	$	1,476,626		$	1,355,427		$	1,195,496
Total loans held for sale	$	3,132		$	26,495		$	573
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES:
	Quarter Ended
	6/30/2015			12/31/2014			6/30/2014
Beginning balance	$	19,325		$	18,800		$	17,737
Provision		-			250			250
Charge-offs		(9	)		(22	)		(234	)
Recoveries		735			172			725
Ending balance	$	20,051		$	19,200		$	18,478
KEY RATIOS:
	At
	6/30/2015			12/31/2014			6/30/2014
Allowance as a % of total loans (1)		1.36	%		1.42	%		1.55	%
Non-accrual loans as a % of total loans (1)		0.37	%		0.96	%		1.16	%
Non-performing assets as a % of total loans, loans held for sale and OREO		0.37	%		0.94	%		1.16	%
Allowance for loan losses as a % of non-accrual loans (1)		363	%		148	%		133	%
Allowance for loan losses as a % of non-accrual loans and loans 90 days or more past due and still accruing (1)		363	%		148	%		133	%

(1) Excludes loans held for sale.

42

ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company originates and invests in interest-earning assets and solicits interest-bearing deposit accounts. The Company’s operations are subject to market risk resulting from fluctuations in interest rates to the extent that there is a difference between the amounts of interest-earning assets and interest-bearing liabilities that are prepaid, withdrawn, mature, or repriced in any given period of time. The Company’s earnings or the net value of its portfolio will change under different interest rate scenarios. The principal objective of the Company’s asset/liability management program is to maximize net interest income within an acceptable range of overall risk, including both the effect of changes in interest rates and liquidity risk. The Company’s assessment of market risk at June 30, 2015 indicated there were no material changes in the quantitative and qualitative disclosures from those in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

ITEM 4. – CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of its principal executive officer and principal financial officer, of the effectiveness of the design and operation of its disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of the end of the period covered by this report.

Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that, as of June 30, 2015, the Company’s disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the Company’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. There have been no changes in the Company’s internal controls or in other factors that have materially affected, or are reasonably likely to materially affect, internal controls subsequent to the date the Company carried out its evaluation.

Changes in Internal Control Over Financial Reporting

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

Limitations on Effectiveness of Controls and Procedures

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

PART II

ITEM 1. - LEGAL PROCEEDINGS

See the information set forth in Note 10—Legal Proceedings in the Notes to Unaudited Condensed Consolidated Financial Statements under Part I, Item I, which information is incorporated by reference in response to this item.

ITEM 1A. – RISK FACTORS

There are no material changes from the risks disclosed in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2014, except as discussed below.

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

43

At June 30, 2015, $599 million, or 41% of the Company’s total gross loan portfolio, was comprised of commercial real estate (exclusive of multifamily and mixed use commercial loans). This type of lending is generally sensitive to regional and local economic conditions that significantly impact the ability of borrowers to meet their loan payment obligations, making loss levels difficult to predict. Although real estate prices have shown signs of improvement, a decline in real estate values may reduce the value of the real estate collateral securing these types of loans and increase the risk that the Company would incur losses if borrowers default on their loans.

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

Not applicable.

ITEM 3. – DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. – MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. – OTHER INFORMATION

Not applicable.

ITEM 6. – EXHIBITS

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

44

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SUFFOLK BANCORP

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

45

EXHIBIT INDEX

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

46

EX-31.1

EXHIBIT 31.1

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

I, Howard C. Bluver, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: July 30, 2015

/s/ Howard C. Bluver

Howard C. Bluver

President & Chief Executive Officer

(principal executive officer)

EX-31.2

EXHIBIT 31.2

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

I, Brian K. Finneran, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: July 30, 2015

/s/ Brian K. Finneran

Brian K. Finneran

Executive Vice President & Chief Financial Officer

(principal financial and accounting officer)

EX-32.1

EXHIBIT 32.1

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

I, Howard C. Bluver, President & Chief Executive Officer of Suffolk Bancorp (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2015 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: July 30, 2015

/s/ Howard C. Bluver

Howard C. Bluver

President & Chief Executive Officer

(principal executive officer)

EX-32.2

EXHIBIT 32.2

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

I, Brian K. Finneran,  Chief Financial Officer of Suffolk Bancorp (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2015 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: July 30, 2015

/s/ Brian K. Finneran

Brian K. Finneran

Executive Vice President & Chief Financial Officer

(principal financial and accounting officer)

XML

LOANS, Summary of Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	$ 12,281		$ 12,281		$ 18,624
Impaired loans with an allowance recorded, Unpaid Principal Balance	4,303		4,303		4,474
Impaired loans, Unpaid Principal Balance, Total	16,584		16,584		23,098
Impaired loans with no allowance recorded, Recorded Investment	11,734		11,734		18,077
Impaired loans with an allowance recorded, Recorded Investment	4,166		4,166		4,338
Impaired Loans, Recorded Investment, Total	15,900		15,900		22,415
Impaired Loans, No Allowance Allocated	0		0		0
Impaired Loans, Allowance Allocated	1,027		1,027		1,005
Average recorded investment in impaired loans	20,336	$ 24,402	21,270	$ 24,750
Interest income recognized on impaired loans	834	396	971	809
Commercial and Industrial [Member]
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	2,808		2,808		4,833
Impaired loans with an allowance recorded, Unpaid Principal Balance	41		41		57
Impaired loans with no allowance recorded, Recorded Investment	2,808		2,808		4,833
Impaired loans with an allowance recorded, Recorded Investment	40		40		56
Impaired Loans, No Allowance Allocated	0		0		0
Impaired Loans, Allowance Allocated	5		5		16
Average recorded investment in impaired loans	3,170	7,290	3,857	7,428
Interest income recognized on impaired loans	226	292	259	551
Commercial Real Estate [Member]
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	5,775		5,775		10,632
Impaired loans with no allowance recorded, Recorded Investment	5,357		5,357		10,214
Impaired Loans, No Allowance Allocated	0		0		0
Average recorded investment in impaired loans	9,461	11,167	9,832	11,361
Interest income recognized on impaired loans	549	56	599	155
Residential Mortgages [Member]
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	2,084		2,084		1,645
Impaired loans with an allowance recorded, Unpaid Principal Balance	3,684		3,684		3,906
Impaired loans with no allowance recorded, Recorded Investment	1,955		1,955		1,516
Impaired loans with an allowance recorded, Recorded Investment	3,684		3,684		3,906
Impaired Loans, No Allowance Allocated	0		0		0
Impaired Loans, Allowance Allocated	779		779		809
Average recorded investment in impaired loans	5,644	5,021	5,528	5,028
Interest income recognized on impaired loans	41	40	79	76
Home Equity [Member]
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	1,402		1,402		1,377
Impaired loans with an allowance recorded, Unpaid Principal Balance	398		398		326
Impaired loans with no allowance recorded, Recorded Investment	1,402		1,402		1,377
Impaired loans with an allowance recorded, Recorded Investment	262		262		190
Impaired Loans, No Allowance Allocated	0		0		0
Impaired Loans, Allowance Allocated	158		158		92
Average recorded investment in impaired loans	1,666	720	1,664	745
Interest income recognized on impaired loans	15	3	28	20
Consumer [Member]
Summary of impaired loans [Abstract]
Impaired loans with no allowance recorded, Unpaid Principal Balance	212		212		137
Impaired loans with an allowance recorded, Unpaid Principal Balance	180		180		185
Impaired loans with no allowance recorded, Recorded Investment	212		212		137
Impaired loans with an allowance recorded, Recorded Investment	180		180		186
Impaired Loans, No Allowance Allocated	0		0		0
Impaired Loans, Allowance Allocated	85		85		$ 88
Average recorded investment in impaired loans	395	204	389	188
Interest income recognized on impaired loans	$ 3	$ 5	$ 6	$ 7

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BORROWINGS (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Debt Instrument [Line Items]
Daily average outstanding	$ 96,600	$ 13,059
Total interest cost	$ 216	$ 48
Average interest rate paid (in hundredths)	0.45%	0.37%
Maximum amount outstanding at any month-end	$ 170,000	$ 130,000
Ending balance	$ 65,000	$ 130,000
Weighted-average interest rate on balances outstanding (in hundredths)	0.67%	0.32%
Assets pledged as collateral to the Federal Home Loan Bank	$ 603,000	$ 505,000
Federal Home Loan Bank borrowings	65,000	130,000
Federal Home Loan Bank Borrowings Short-Term [Member]
Debt Instrument [Line Items]
Daily average outstanding	90,050	13,051
Total interest cost	$ 159	$ 48
Average interest rate paid (in hundredths)	0.35%	0.37%
Maximum amount outstanding at any month-end	$ 155,000	$ 130,000
Ending balance	$ 50,000	$ 130,000
Weighted-average interest rate on balances outstanding (in hundredths)	0.34%	0.32%
Federal Home Loan Bank Borrowings Long-Term [Member]
Debt Instrument [Line Items]
Daily average outstanding	$ 6,547	$ 0
Total interest cost	$ 57	$ 0
Average interest rate paid (in hundredths)	1.76%	0.00%
Maximum amount outstanding at any month-end	$ 15,000	$ 0
Ending balance	$ 15,000	$ 0
Weighted-average interest rate on balances outstanding (in hundredths)	1.76%	0.00%
Federal Funds Purchased [Member]
Debt Instrument [Line Items]
Daily average outstanding	$ 3	$ 8
Total interest cost	$ 0	$ 0
Average interest rate paid (in hundredths)	0.45%	0.46%
Maximum amount outstanding at any month-end	$ 0	$ 0
Ending balance	$ 0	$ 0
Weighted-average interest rate on balances outstanding (in hundredths)	0.00%	0.00%

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REGULATORY MATTERS (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Total capital to risk-weighted assets [Abstract]
Actual capital ratios, Amount	$ 212,021	$ 201,476
Minimum for capital adequacy, Amount	129,658	121,608
Minimum to be Well Capitalized under prompt corrective action provisions, Amount	$ 162,073	$ 152,010
Total capital to risk-weighted assets, Ratio [Abstract]
Actual capital ratios, Ratio (in hundredths)	13.08%	13.25%
Minimum for capital adequacy, Ratio (in hundredths)	8.00%	8.00%
Minimum to be Well Capitalized under prompt corrective action provisions, Ratio (in hundredths)	10.00%	10.00%
Tier 1 capital to risk-weighted assets [Abstract]
Actual capital ratios, Amount	$ 191,761	$ 182,469
Minimum for capital adequacy, Amount	97,244	60,804
Minimum to be Well Capitalized under prompt corrective action provisions, Amount	$ 129,658	$ 91,206
Tier 1 Capital to risk-weighted assets, Ratio [Abstract]
Actual capital ratios, Ratio (in hundredths)	11.83%	12.00%
Minimum for capital adequacy, Ratio (in hundredths)	6.00%	4.00%
Minimum to be Well Capitalized under prompt corrective action provisions, Ratio (in hundredths)	8.00%	6.00%
Common equity tier 1 capital to risk-weighted assets [Abstract]
Actual capital ratios, Amount	$ 191,761
Minimum for capital adequacy, Amount	72,933
Minimum to be Well Capitalized under prompt corrective action provisions, Amount	$ 105,347
Common equity tier 1 capital to risk-weighted assets, Ratio [Abstract]
Actual capital ratios, Ratio (in hundredths)	11.83%
Minimum for capital adequacy, Ratio (in hundredths)	4.50%
Minimum to be Well Capitalized under prompt corrective action provisions, Ratio (in hundredths)	6.50%
Tier 1 capital to adjusted average assets (leverage) [Abstract]
Actual capital ratios, Amount	$ 191,761	$ 182,469
Minimum for capital adequacy, Amount	77,107	73,312
Minimum to be Well Capitalized under prompt corrective action provisions, Amount	$ 96,384	$ 91,640
Tier 1 capital to adjusted average assets (leverage), Ratio [Abstract]
Actual capital ratios, Ratio (in hundredths)	9.95%	9.96%
Minimum for capital adequacy, Ratio (in hundredths)	4.00%	4.00%
Minimum to be Well Capitalized under prompt corrective action provisions, Ratio (in hundredths)	5.00%	5.00%
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Tier 1 leverage capital ratio (in hundredths)	9.95%	9.96%
Tier 1 risk-based capital ratio (in hundredths)	11.83%	12.00%
Common equity tier 1 risk-based capital ratio (in hundredths)	11.83%
Total risk-based capital ratio (in hundredths)	13.08%	13.25%
Parent Company [Member]
Total capital to risk-weighted assets, Ratio [Abstract]
Actual capital ratios, Ratio (in hundredths)	13.26%	13.35%
Tier 1 Capital to risk-weighted assets, Ratio [Abstract]
Actual capital ratios, Ratio (in hundredths)	12.01%	12.10%
Common equity tier 1 capital to risk-weighted assets, Ratio [Abstract]
Actual capital ratios, Ratio (in hundredths)	12.01%
Tier 1 capital to adjusted average assets (leverage), Ratio [Abstract]
Actual capital ratios, Ratio (in hundredths)	10.10%	10.04%
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Tier 1 leverage capital ratio (in hundredths)	10.10%	10.04%
Tier 1 risk-based capital ratio (in hundredths)	12.01%	12.10%
Common equity tier 1 risk-based capital ratio (in hundredths)	12.01%
Total risk-based capital ratio (in hundredths)	13.26%	13.35%

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INVESTMENT SECURITIES, Amortized Cost, Maturities and Approximate Fair Value (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Amortized Cost [Abstract]
Due in one year or less	$ 30,745
Due from one to five years	142,658
Due from five to ten years	96,950
Amortized Cost	270,353	$ 294,310
Fair Value [Abstract]
Due in one year or less	31,271
Due from one to five years	146,416
Due from five to ten years	96,150
Total securities available for sale	273,837	298,670
Amortized Cost [Abstract]
Due in one year or less	837
Due from one to five years	4,593
Due from five to ten years	32,097
Due after ten years	26,091
Amortized Cost	63,618	62,270
Total investment securities, Amortized Cost	333,971	356,580
Fair Value [Abstract]
Due in one year or less	866
Due from one to five years	4,910
Due from five to ten years	32,711
Due after ten years	27,364
Total securities held to maturity	65,851	64,796
Total investment securities, Fair Value	$ 339,688	$ 363,466

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LOANS (Tables)

6 Months Ended

Jun. 30, 2015

LOANS [Abstract]

Categorizes total loans

At June 30, 2015 and December 31, 2014, net loans disaggregated by class consisted of the following (in thousands):

	June 30, 2015			December 31, 2014
Commercial and industrial	$	196,881		$	177,813
Commercial real estate		598,866			560,524
Multifamily		361,309			309,666
Mixed use commercial		50,372			34,806
Real estate construction		31,628			26,206
Residential mortgages		182,828			187,828
Home equity		48,298			50,982
Consumer		6,444			7,602
Gross loans		1,476,626			1,355,427
Allowance for loan losses		(20,051	)		(19,200	)
Net loans at end of period	$	1,456,575		$	1,336,227

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

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

	Three Months Ended June 30, 2015												Three Months Ended June 30, 2014
	Balance at beginning of period		Charge-offs			Recoveries		(Credit) provision for loan losses			Balance at end of period		Balance at  beginning of period		Charge-offs			Recoveries		Provision (credit) for loan losses			Balance at end of period
Commercial and industrial	$	1,998	$	-		$	693	$	(618	)	$	2,073	$	2,481	$	(200	)	$	210	$	441		$	2,932
Commercial real estate		7,352		-			11		(1,363	)		6,000		7,208		-			485		206			7,899
Multifamily		4,467		-			-		(402	)		4,065		2,640		-			-		(196	)		2,444
Mixed use commercial		273		-			-		192			465		87		-			-		125			212
Real estate construction		360		-			-		118			478		217		-			-		13			230
Residential mortgages		2,618		-			16		(63	)		2,571		2,627		(32	)		4		51			2,650
Home equity		728		-			5		(61	)		672		718		-			18		25			761
Consumer		155		(9	)		10		(6	)		150		186		(2	)		8		(26	)		166
Unallocated		1,374		-			-		2,203			3,577		1,573		-			-		(389	)		1,184
Total	$	19,325	$	(9	)	$	735	$	-		$	20,051	$	17,737	$	(234	)	$	725	$	250		$	18,478

	Six Months Ended June 30, 2015												Six Months Ended June 30, 2014
	Balance at beginning of  period		Charge-offs			Recoveries		(Credit)  provision  for loan  losses			Balance at end of period		Balance at beginning of period		Charge-offs			Recoveries		Provision (credit) for loan losses			Balance at end of period
Commercial and industrial	$	1,560	$	(492	)	$	1,036	$	(31	)	$	2,073	$	2,615	$	(315	)	$	503	$	129		$	2,932
Commercial real estate		6,777		-			18		(795	)		6,000		6,572		-			497		830			7,899
Multifamily		4,018		-			-		47			4,065		2,159		-			-		285			2,444
Mixed use commercial		261		-			-		204			465		54		-			-		158			212
Real estate construction		383		-			-		95			478		88		-			-		142			230
Residential mortgages		3,027		-			27		(483	)		2,571		2,463		(32	)		8		211			2,650
Home equity		709		-			7		(44	)		672		745		-			45		(29	)		761
Consumer		166		(10	)		15		(21	)		150		241		(4	)		13		(84	)		166
Unallocated		2,299		-			-		1,278			3,577		2,326		-			-		(1,142	)		1,184
Total	$	19,200	$	(502	)	$	1,103	$	250		$	20,051	$	17,263	$	(351	)	$	1,066	$	500		$	18,478

Summary of changes in the allowance for loan losses

At June 30, 2015 and December 31, 2014, the ending balance in the allowance for loan losses disaggregated by class and impairment methodology is as follows (in thousands). Also in the tables below are total loans at June 30, 2015 and December 31, 2014 disaggregated by class and impairment methodology (in thousands).

	Allowance for Loan Losses						Loan Balances
June 30, 2015	Individually evaluated for impairment		Collectively evaluated for impairment		Ending balance		Individually evaluated for impairment		Collectively evaluated for impairment		Ending balance
Commercial and industrial	$	5	$	2,068	$	2,073	$	2,848	$	194,033	$	196,881
Commercial real estate		-		6,000		6,000		5,357		593,509		598,866
Multifamily		-		4,065		4,065		-		361,309		361,309
Mixed use commercial		-		465		465		-		50,372		50,372
Real estate construction		-		478		478		-		31,628		31,628
Residential mortgages		779		1,792		2,571		5,639		177,189		182,828
Home equity		158		514		672		1,664		46,634		48,298
Consumer		85		65		150		392		6,052		6,444
Unallocated		-		3,577		3,577		-		-		-
Total	$	1,027	$	19,024	$	20,051	$	15,900	$	1,460,726	$	1,476,626

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

Summary of impaired loans

The following table presents the Company’s impaired loans disaggregated by class at June 30, 2015 and December 31, 2014 (in thousands).

	June 30, 2015						December 31, 2014
	Unpaid Principal Balance		Recorded Balance		Allowance Allocated		Unpaid Principal Balance		Recorded Balance		Allowance Allocated
With no allowance recorded:
Commercial and industrial	$	2,808	$	2,808	$	-	$	4,833	$	4,833	$	-
Commercial real estate		5,775		5,357		-		10,632		10,214		-
Residential mortgages		2,084		1,955		-		1,645		1,516		-
Home equity		1,402		1,402		-		1,377		1,377		-
Consumer		212		212		-		137		137		-
Subtotal		12,281		11,734		-		18,624		18,077		-
With an allowance recorded:
Commercial and industrial		41		40		5		57		56		16
Residential mortgages		3,684		3,684		779		3,906		3,906		809
Home equity		398		262		158		326		190		92
Consumer		180		180		85		185		186		88
Subtotal		4,303		4,166		1,027		4,474		4,338		1,005
Total	$	16,584	$	15,900	$	1,027	$	23,098	$	22,415	$	1,005

The following table presents the Company’s average recorded investment in impaired loans and the related interest income recognized disaggregated by class for the three and six months ended June 30, 2015 and 2014 (in thousands). No interest income was recognized on a cash basis on impaired loans for any of the periods presented. The interest income recognized on accruing impaired loans is shown in the following table.

	Three Months Ended June 30,								Six Months Ended June 30,
	2015				2014				2015				2014
	Average recorded investment in impaired loans		Interest income  recognized on impaired loans		Average recorded investment in impaired loans		Interest income  recognized on impaired loans		Average recorded investment in impaired  loans		Interest income recognized on impaired loans		Average recorded  investment in impaired loans		Interest income  recognized on  impaired loans
Commercial and industrial	$	3,170	$	226	$	7,290	$	292	$	3,857	$	259	$	7,428	$	551
Commercial real estate		9,461		549		11,167		56		9,832		599		11,361		155
Residential mortgages		5,644		41		5,021		40		5,528		79		5,028		76
Home equity		1,666		15		720		3		1,664		28		745		20
Consumer		395		3		204		5		389		6		188		7
Total	$	20,336	$	834	$	24,402	$	396	$	21,270	$	971	$	24,750	$	809

Troubled debt restructurings

Outstanding TDRs, disaggregated by class, at June 30, 2015 and December 31, 2014 are as follows (dollars in thousands):

	June 30, 2015				December 31, 2014
TDRs Outstanding	Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance
Commercial and industrial		24	$	1,885		31	$	3,683
Commercial real estate		6		5,126		8		10,179
Residential mortgages		20		4,444		19		4,314
Home equity		5		1,204		5		1,216
Consumer		7		273		7		281
Total		62	$	12,932		70	$	19,673

The following presents, disaggregated by class, information regarding TDRs executed during the three and six months ended June 30, 2015 and 2014 (dollars in thousands):

	Three Months Ended June 30,
	2015						2014
New TDRs	Number of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance		Number of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Commercial and industrial		1	$	323	$	323		7	$	1,500	$	1,500
Commercial real estate		-		-		-		2		5,161		5,161
Residential mortgages		-		-		-		3		273		273
Home equity		-		-		-		2		109		109
Consumer		-		-		-		3		99		99
Total		1	$	323	$	323		17	$	7,142	$	7,142

	Six Months Ended June 30,
	2015						2014
New TDRs	Number of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance		Number of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Commercial and industrial		2	$	335	$	335		10	$	1,877	$	1,877
Commercial real estate		-		-		-		2		5,161		5,161
Residential mortgages		2		194		199		3		273		273
Home equity		-		-		-		2		109		109
Consumer		-		-		-		3		99		99
Total		4	$	529	$	534		20	$	7,519	$	7,519

Presented below and disaggregated by class is information regarding loans modified as TDRs that had payment defaults of 90 days or more within twelve months of restructuring during the three and six months ended June 30, 2015 and 2014 (dollars in thousands).

	Three Months Ended June 30,								Six Months Ended June 30,
	2015				2014				2015				2014
Defaulted TDRs	Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance
Commercial real estate		-	$	-		-	$	-		-	$	-		2	$	1,566
Consumer		1		46		-		-		1		46		-		-
Total		1	$	46		-	$	-		1	$	46		2	$	1,566

Summary of impaired and non-accrual loans

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

	June 30, 2015		December 31, 2014
Non-accrual loans	$	5,529	$	12,981
Non-accrual loans held for sale		-		-
Loans 90 days past due and still accruing		-		-
OREO		-		-
Total non-performing assets	$	5,529	$	12,981
TDRs accruing interest	$	10,091	$	9,380
TDRs non-accruing	$	2,841	$	10,293

Summarizes non-accrual loans by loan class

At June 30, 2015 and December 31, 2014, non-accrual loans disaggregated by class were as follows (dollars in thousands):

	June 30, 2015										December 31, 2014
	Non-accrual loans		% of Total			Total Loans		% of Total Loans			Non-accrual loans		% of Total			Total Loans		% of Total Loans
Commercial and industrial	$	1,785		32.3	%	$	196,881		0.1	%	$	4,060		31.3	%	$	177,813		0.3	%
Commercial real estate		1,759		31.8			598,866		0.1			6,556		50.5			560,524		0.5
Multifamily		-		-			361,309		-			-		-			309,666		-
Mixed use commercial		-		-			50,372		-			-		-			34,806		-
Real estate construction		-		-			31,628		-			-		-			26,206		-
Residential mortgages		1,465		26.5			182,828		0.1			2,020		15.6			187,828		0.1
Home equity		355		6.4			48,298		0.1			303		2.3			50,982		0.1
Consumer		165		3.0			6,444		-			42		0.3			7,602		-
Total	$	5,529		100.0	%	$	1,476,626		0.4	%	$	12,981		100.0	%	$	1,355,427		1.0	%

Summary of current and past due loans

At June 30, 2015 and December 31, 2014, past due loans disaggregated by class were as follows (in thousands).

	Past Due
June 30, 2015	30 - 59 days			60 - 89 days			90 days and over			Total			Current			Total
Commercial and industrial	$	-		$	2,578		$	1,785		$	4,363		$	192,518		$	196,881
Commercial real estate		-			-			1,759			1,759			597,107			598,866
Multifamily		-			-			-			-			361,309			361,309
Mixed use commercial		-			-			-			-			50,372			50,372
Real estate construction		-			-			-			-			31,628			31,628
Residential mortgages		1,196			348			1,465			3,009			179,819			182,828
Home equity		496			-			355			851			47,447			48,298
Consumer		-			-			165			165			6,279			6,444
Total	$	1,692		$	2,926		$	5,529		$	10,147		$	1,466,479		$	1,476,626
% of Total Loans		0.1	%		0.2	%		0.4	%		0.7	%		99.3	%		100.0	%

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

Credit risk profile by internally assigned grade

The following presents the Company’s loan portfolio credit risk profile by internally assigned grade disaggregated by class of loan at June 30, 2015 and December 31, 2014 (in thousands).

	June 30, 2015												December 31, 2014
	Grade												Grade
	Pass			Special mention			Substandard			Total			Pass			Special mention			Substandard			Total
Commercial and industrial	$	182,614		$	3,898		$	10,369		$	196,881		$	167,922		$	1,225		$	8,666		$	177,813
Commercial real estate		582,851			11,568			4,447			598,866			536,536			9,182			14,806			560,524
Multifamily		361,309			-			-			361,309			309,666			-			-			309,666
Mixed use commercial		50,356			-			16			50,372			34,806			-			-			34,806
Real estate construction		31,628			-			-			31,628			26,206			-			-			26,206
Residential mortgages		180,564			-			2,264			182,828			183,263			-			4,565			187,828
Home equity		47,943			-			355			48,298			49,569			-			1,413			50,982
Consumer		6,279			-			165			6,444			7,279			-			323			7,602
Total	$	1,443,544		$	15,466		$	17,616		$	1,476,626		$	1,315,247		$	10,407		$	29,773		$	1,355,427
% of Total		97.8	%		1.0	%		1.2	%		100.0	%		97.0	%		0.8	%		2.2	%		100.0	%

XML

FAIR VALUE, Non-recurring Basis (Details) - Fair Value, Measurements, Nonrecurring [Member] - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Assets measured at fair value on a non-recurring basis [Abstract]
Impaired loans	$ 3,104	$ 3,293
Total	3,104	3,293
Significant Unobservable Inputs (Level 3) [Member]
Assets measured at fair value on a non-recurring basis [Abstract]
Impaired loans	3,104	3,293
Total	$ 3,104	$ 3,293

XML

LOANS, Loans and Allowance for Loan Losses by Risk Rating (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	$ 5,529		$ 5,529		$ 12,981
Percentage of Total (in hundredths)			100.00%		100.00%
Total Loans	$ 1,476,626		$ 1,476,626		$ 1,355,427
Percentage of Total Loans (in hundredths)	0.40%		0.40%		1.00%
Additional interest income for the non-accrual loans outstanding at the end of the reported periods	$ 83	$ 145	$ 171	$ 639
Commercial and Industrial [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	1,785		$ 1,785		$ 4,060
Percentage of Total (in hundredths)			32.30%		31.30%
Total Loans	$ 196,881		$ 196,881		$ 177,813
Percentage of Total Loans (in hundredths)	0.10%		0.10%		0.30%
Commercial Real Estate [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	$ 1,759		$ 1,759		$ 6,556
Percentage of Total (in hundredths)			31.80%		50.50%
Total Loans	$ 598,866		$ 598,866		$ 560,524
Percentage of Total Loans (in hundredths)	0.10%		0.10%		0.50%
Multifamily [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	$ 0		$ 0		$ 0
Percentage of Total (in hundredths)			0.00%		0.00%
Total Loans	$ 361,309		$ 361,309		$ 309,666
Percentage of Total Loans (in hundredths)	0.00%		0.00%		0.00%
Mixed Use Commercial [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	$ 0		$ 0		$ 0
Percentage of Total (in hundredths)			0.00%		0.00%
Total Loans	$ 50,372		$ 50,372		$ 34,806
Percentage of Total Loans (in hundredths)	0.00%		0.00%		0.00%
Real Estate Construction [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	$ 0		$ 0		$ 0
Percentage of Total (in hundredths)			0.00%		0.00%
Total Loans	$ 31,628		$ 31,628		$ 26,206
Percentage of Total Loans (in hundredths)	0.00%		0.00%		0.00%
Residential Mortgages [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	$ 1,465		$ 1,465		$ 2,020
Percentage of Total (in hundredths)			26.50%		15.60%
Total Loans	$ 182,828		$ 182,828		$ 187,828
Percentage of Total Loans (in hundredths)	0.10%		0.10%		0.10%
Home Equity [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	$ 355		$ 355		$ 303
Percentage of Total (in hundredths)			6.40%		2.30%
Total Loans	$ 48,298		$ 48,298		$ 50,982
Percentage of Total Loans (in hundredths)	0.10%		0.10%		0.10%
Consumer [Member]
Summarizes non-accrual loans by loan class [Abstract]
Non-accrual Loans principal balance	$ 165		$ 165		$ 42
Percentage of Total (in hundredths)			3.00%		0.30%
Total Loans	$ 6,444		$ 6,444		$ 7,602
Percentage of Total Loans (in hundredths)	0.00%		0.00%		0.00%

XML

LOANS, Analysis of Changes in the Allowances for Loan Losses (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Allowance for loan losses [Abstract]
Balance, Beginning of Period	$ 19,325	$ 17,737	$ 19,200	$ 17,263
Charge-offs	(9)	(234)	(502)	(351)
Recoveries	735	725	1,103	1,066
Provision (credit) for loan losses	0	250	250	500
Balance, End of Period	20,051	18,478	$ 20,051	18,478
Number of months of performance trouble debt restructuring returns to accrual status			6 months
Commercial and Industrial [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	1,998	2,481	$ 1,560	2,615
Charge-offs	0	(200)	(492)	(315)
Recoveries	693	210	1,036	503
Provision (credit) for loan losses	(618)	441	(31)	129
Balance, End of Period	2,073	2,932	2,073	2,932
Commercial Real Estate [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	7,352	7,208	6,777	6,572
Charge-offs	0	0	0	0
Recoveries	11	485	18	497
Provision (credit) for loan losses	(1,363)	206	(795)	830
Balance, End of Period	6,000	7,899	6,000	7,899
Multifamily [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	4,467	2,640	4,018	2,159
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision (credit) for loan losses	(402)	(196)	47	285
Balance, End of Period	4,065	2,444	4,065	2,444
Mixed Use Commercial [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	273	87	261	54
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision (credit) for loan losses	192	125	204	158
Balance, End of Period	465	212	465	212
Real Estate Construction [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	360	217	383	88
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision (credit) for loan losses	118	13	95	142
Balance, End of Period	478	230	478	230
Residential Mortgages [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	2,618	2,627	3,027	2,463
Charge-offs	0	(32)	0	(32)
Recoveries	16	4	27	8
Provision (credit) for loan losses	(63)	51	(483)	211
Balance, End of Period	2,571	2,650	2,571	2,650
Home Equity [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	728	718	709	745
Charge-offs	0	0	0	0
Recoveries	5	18	7	45
Provision (credit) for loan losses	(61)	25	(44)	(29)
Balance, End of Period	672	761	672	761
Consumer [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	155	186	166	241
Charge-offs	(9)	(2)	(10)	(4)
Recoveries	10	8	15	13
Provision (credit) for loan losses	(6)	(26)	(21)	(84)
Balance, End of Period	150	166	150	166
Unallocated [Member]
Allowance for loan losses [Abstract]
Balance, Beginning of Period	1,374	1,573	2,299	2,326
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision (credit) for loan losses	2,203	(389)	1,278	(1,142)
Balance, End of Period	$ 3,577	$ 1,184	$ 3,577	$ 1,184

XML

FAIR VALUE, Recurring Basis (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Assets [Abstract]
Total	$ 273,837	$ 298,670
Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Total	273,837	298,670
Liabilities [Abstract]
Total	752	752
Fair Value, Measurements, Recurring [Member] | Derivative [Member]
Liabilities [Abstract]
Derivatives	752	752
Fair Value, Measurements, Recurring [Member] | U.S. Government Agency Securities [Member]
Assets [Abstract]
Total	38,238	41,577
Fair Value, Measurements, Recurring [Member] | Obligations of States and Political Subdivisions [Member]
Assets [Abstract]
Total	119,942	137,769
Fair Value, Measurements, Recurring [Member] | Collateralized Mortgage Obligations [Member]
Assets [Abstract]
Total	20,569	21,997
Fair Value, Measurements, Recurring [Member] | Mortgage-backed Securities [Member]
Assets [Abstract]
Total	89,088	90,919
Fair Value, Measurements, Recurring [Member] | Corporate Bonds [Member]
Assets [Abstract]
Total	6,000	6,408
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets [Abstract]
Total	273,837	298,670
Liabilities [Abstract]
Total	0	0
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Derivative [Member]
Liabilities [Abstract]
Derivatives	0	0
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | U.S. Government Agency Securities [Member]
Assets [Abstract]
Total	38,238	41,577
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Obligations of States and Political Subdivisions [Member]
Assets [Abstract]
Total	119,942	137,769
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Collateralized Mortgage Obligations [Member]
Assets [Abstract]
Total	20,569	21,997
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Mortgage-backed Securities [Member]
Assets [Abstract]
Total	89,088	90,919
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Corporate Bonds [Member]
Assets [Abstract]
Total	6,000	6,408
Fair Value, Measurements, Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets [Abstract]
Total	0	0
Liabilities [Abstract]
Total	752	752
Fair Value, Measurements, Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Derivative [Member]
Liabilities [Abstract]
Derivatives	752	752
Fair Value, Measurements, Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | U.S. Government Agency Securities [Member]
Assets [Abstract]
Total	0	0
Fair Value, Measurements, Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Obligations of States and Political Subdivisions [Member]
Assets [Abstract]
Total	0	0
Fair Value, Measurements, Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Collateralized Mortgage Obligations [Member]
Assets [Abstract]
Total	0	0
Fair Value, Measurements, Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Mortgage-backed Securities [Member]
Assets [Abstract]
Total	0	0
Fair Value, Measurements, Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Corporate Bonds [Member]
Assets [Abstract]
Total	$ 0	$ 0

XML

INCOME TAXES (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Operating Loss Carryforwards [Line Items]
Valuation reserve	$ (848)		$ (848)
Operating loss carryforwards, expiration dates			Dec. 31, 2032
Income tax expense	1,579	$ 1,047	$ 2,820	$ 2,158
Effective tax rate (in hundredths)			23.60%	22.40%
Federal income tax statutory rates (in hundredths)			35.00%	34.00%
Unrecognized tax benefits	0		$ 0		$ 34
Unrecognized tax benefits accrued interest	0		0
Federal [Member]
Operating Loss Carryforwards [Line Items]
Net operating loss carryforwards	0		0
New York State [Member]
Operating Loss Carryforwards [Line Items]
Net operating loss carryforwards	$ 19,000		$ 19,000

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) [Abstract]
NET INCOME	$ 9,127	$ 7,491
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Provision for loan losses	250	500
Depreciation and amortization	1,146	1,194
Stock-based compensation - net	337	385
Net amortization of premiums	583	585
Originations of mortgage loans held for sale	(22,689)	(7,661)
Proceeds from sale of mortgage loans originated for sale	22,413	7,426
Gain on sale of mortgage loans originated for sale	(205)	(163)
Gain on sale of portfolio loans	(198)	0
Increase in other intangibles	(1)	(8)
Deferred tax expense (benefit)	327	(43)
Increase in accrued interest and loan fees receivable	(98)	(166)
Decrease (increase) in other assets	256	(905)
Adjustment to unfunded pension liability	(222)	(183)
Decrease in other liabilities	(2,537)	(5,594)
Income from bank owned life insurance	(612)	(720)
Gain on sale of premises and equipment	0	(752)
Net (gain) loss on sale of securities available for sale	(186)	23
Net cash provided by operating activities	7,691	1,409
CASH FLOWS FROM INVESTING ACTIVITIES
Principal payments on investment securities	2,886	6,880
Proceeds from sale of investment securities - available for sale	7,003	20,604
Maturities of investment securities - available for sale	20,530	11,955
Purchases of investment securities - available for sale	(6,800)	(800)
Maturities of investment securities - held to maturity	1,727	841
Purchases of investment securities - held to maturity	(3,000)	(2,834)
Decrease in interest-bearing time deposits in other banks	10,000	0
Decrease (increase) in Federal Reserve and Federal Home Loan Bank stock and other investments	2,423	(338)
Proceeds from sale of portfolio loans	23,986	0
Loan originations - net	(120,542)	(125,933)
Proceeds from sale of premises and equipment	0	1,064
Increase in bank owned life insurance	0	(5,000)
Purchases of premises and equipment - net	(1,106)	(315)
Net cash used in investing activities	(62,893)	(93,876)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts	162,334	58,142
Net decrease in short-term borrowings	(80,000)	0
Net increase in long-term borrowings	15,000	0
Proceeds from stock options exercised	462	50
Cash dividends paid on common stock	(1,405)	0
Proceeds from shares issued under the dividend reinvestment plan	345	0
Decrease in capital lease payable	(56)	(49)
Net cash provided by financing activities	96,680	58,143
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	41,478	(34,324)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	55,516	132,352
CASH AND CASH EQUIVALENTS, END OF PERIOD	96,994	98,028
SUPPLEMENTAL DATA:
Interest paid	1,381	1,271
Income taxes paid	2,561	3,641
Investment securities transferred from available for sale to held to maturity, fair value	$ 0	$ 48,147

XML

LOANS, Loans Current and Past Due by Aging Categories (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Summary of current and past due loans [Abstract]
Total past due	$ 10,147	$ 14,344
Current	1,466,479	1,341,083
Total loans	$ 1,476,626	$ 1,355,427
Financing Receivable, Recorded Investment, Past Due (in hundredths)	0.70%	1.10%
Financing Receivable, Recorded Investment, Current (in hundredths)	99.30%	98.90%
Total (in hundredths)	100.00%	100.00%
30-59 days past due [Member]
Summary of current and past due loans [Abstract]
Total past due	$ 1,692	$ 933
Financing Receivable, Recorded Investment, Past Due (in hundredths)	0.10%	0.10%
60-89 days past due [Member]
Summary of current and past due loans [Abstract]
Total past due	$ 2,926	$ 430
Financing Receivable, Recorded Investment, Past Due (in hundredths)	0.20%	0.00%
90 days and over past due [Member]
Summary of current and past due loans [Abstract]
Total past due	$ 5,529	$ 12,981
Financing Receivable, Recorded Investment, Past Due (in hundredths)	0.40%	1.00%
Commercial and Industrial [Member]
Summary of current and past due loans [Abstract]
Total past due	$ 4,363	$ 4,353
Current	192,518	173,460
Total loans	196,881	177,813
Commercial and Industrial [Member] | 30-59 days past due [Member]
Summary of current and past due loans [Abstract]
Total past due	0	52
Commercial and Industrial [Member] | 60-89 days past due [Member]
Summary of current and past due loans [Abstract]
Total past due	2,578	241
Commercial and Industrial [Member] | 90 days and over past due [Member]
Summary of current and past due loans [Abstract]
Total past due	1,785	4,060
Commercial Real Estate [Member]
Summary of current and past due loans [Abstract]
Total past due	1,759	6,556
Current	597,107	553,968
Total loans	598,866	560,524
Commercial Real Estate [Member] | 30-59 days past due [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Commercial Real Estate [Member] | 60-89 days past due [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Commercial Real Estate [Member] | 90 days and over past due [Member]
Summary of current and past due loans [Abstract]
Total past due	1,759	6,556
Multifamily [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Current	361,309	309,666
Total loans	361,309	309,666
Multifamily [Member] | 30-59 days past due [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Multifamily [Member] | 60-89 days past due [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Multifamily [Member] | 90 days and over past due [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Mixed Use Commercial [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Current	50,372	34,806
Total loans	50,372	34,806
Mixed Use Commercial [Member] | 30-59 days past due [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Mixed Use Commercial [Member] | 60-89 days past due [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Mixed Use Commercial [Member] | 90 days and over past due [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Real Estate Construction [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Current	31,628	26,206
Total loans	31,628	26,206
Real Estate Construction [Member] | 30-59 days past due [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Real Estate Construction [Member] | 60-89 days past due [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Real Estate Construction [Member] | 90 days and over past due [Member]
Summary of current and past due loans [Abstract]
Total past due	0	0
Residential Mortgages [Member]
Summary of current and past due loans [Abstract]
Total past due	3,009	2,842
Current	179,819	184,986
Total loans	182,828	187,828
Residential Mortgages [Member] | 30-59 days past due [Member]
Summary of current and past due loans [Abstract]
Total past due	1,196	822
Residential Mortgages [Member] | 60-89 days past due [Member]
Summary of current and past due loans [Abstract]
Total past due	348	0
Residential Mortgages [Member] | 90 days and over past due [Member]
Summary of current and past due loans [Abstract]
Total past due	1,465	2,020
Home Equity [Member]
Summary of current and past due loans [Abstract]
Total past due	851	415
Current	47,447	50,567
Total loans	48,298	50,982
Home Equity [Member] | 30-59 days past due [Member]
Summary of current and past due loans [Abstract]
Total past due	496	0
Home Equity [Member] | 60-89 days past due [Member]
Summary of current and past due loans [Abstract]
Total past due	0	112
Home Equity [Member] | 90 days and over past due [Member]
Summary of current and past due loans [Abstract]
Total past due	355	303
Consumer [Member]
Summary of current and past due loans [Abstract]
Total past due	165	178
Current	6,279	7,424
Total loans	6,444	7,602
Consumer [Member] | 30-59 days past due [Member]
Summary of current and past due loans [Abstract]
Total past due	0	59
Consumer [Member] | 60-89 days past due [Member]
Summary of current and past due loans [Abstract]
Total past due	0	77
Consumer [Member] | 90 days and over past due [Member]
Summary of current and past due loans [Abstract]
Total past due	$ 165	$ 42

XML

BORROWINGS (Tables)

6 Months Ended

Jun. 30, 2015

BORROWINGS [Abstract]

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

The following summarizes borrowed funds at June 30, 2015 and December 31, 2014 (dollars in thousands):

As of or for the Six Months Ended June 30, 2015	Federal Home Loan Bank Borrowings Short-Term			Federal Home Loan Bank Borrowings Long-Term			Federal Funds Purchased			Total
Daily average outstanding	$	90,050		$	6,547		$	3		$	96,600
Total interest cost		159			57			-			216
Average interest rate paid		0.35	%		1.76	%		0.45	%		0.45	%
Maximum amount outstanding at any month-end	$	155,000		$	15,000		$	-		$	170,000
Ending balance		50,000			15,000			-			65,000
Weighted-average interest rate on balances outstanding		0.34	%		1.76	%		-	%		0.67	%

As of or for the Year Ended December 31, 2014	Federal Home Loan Bank Borrowings Short-Term			Federal Home Loan Bank Borrowings Long-Term			Federal Funds Purchased			Total
Daily average outstanding	$	13,051		$	-		$	8		$	13,059
Total interest cost		48			-			-			48
Average interest rate paid		0.37	%		-	%		0.46	%		0.37	%
Maximum amount outstanding at any month-end	$	130,000		$	-		$	-		$	130,000
Ending balance		130,000			-			-			130,000
Weighted-average interest rate on balances outstanding		0.32	%		-	%		-	%		0.32	%

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FAIR VALUE (Tables)

6 Months Ended

Jun. 30, 2015

FAIR VALUE [Abstract]

Carrying amounts and fair values of financial instruments

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

	Level in		June 30, 2015				December 31, 2014
	Fair Value Hierarchy		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets:
Cash and due from banks	Level 1		$	96,994	$	96,994	$	54,516	$	54,516
Federal funds sold	Level 2			-		-		1,000		1,000
Interest-bearing time deposits in other banks	Level 2			-		-		10,000		10,017
Federal Reserve and Federal Home Loan Bank stock and other investments	N/	A		6,177		N/A		8,600		N/A
Investment securities held to maturity	Level 2			63,618		65,851		62,270		64,796
Investment securities available for sale	Level 2			273,837		273,837		298,670		298,670
Loans held for sale	Level 2			3,132		3,132		26,495		26,495
Loans, net of allowance	Level 2, 3 (1)			1,456,575		1,447,839		1,336,227		1,329,041
Accrued interest and loan fees receivable	Level 2			5,774		5,774		5,676		5,676
Financial Liabilities:
Non-maturity deposits	Level 2			1,475,894		1,475,894		1,337,301		1,337,301
Time deposits	Level 2			242,500		242,927		218,759		219,089
Borrowings	Level 2			65,000		64,845		130,000		130,004
Accrued interest payable	Level 2			186		186		136		136
Derivatives	Level 3			752		752		752		752

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

Assets measured at fair value on a non-recurring basis

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

Assets:	June 30, 2015		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Impaired loans	$	3,104	$	3,104
Total	$	3,104	$	3,104

Assets:	December 31, 2014		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Impaired loans	$	3,293	$	3,293
Total	$	3,293	$	3,293

Fair Value Inputs, Quantitative information

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

	Fair Value at
Assets:	June 30, 2015		December 31, 2014		Valuation Technique	Unobservable Inputs	Discount
Impaired loans:
Residential mortgages		2,905		3,097	Third party appraisal	Discount to appraised value		25	%	(1	)
Home equity		104		98	Third party appraisal	Discount to appraised value		25	%	(1	)
Consumer		95		98	Third party appraisal	Discount to appraised value		25	%	(2	)
Total	$	3,104	$	3,293

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

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

Valuation of financial instruments measured at fair value on recurring basis

The following presents fair value measurements on a recurring basis at June 30, 2015 and December 31, 2014 (in thousands):

			Fair Value Measurements Using
Assets:	June 30, 2015		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government agency securities	$	38,238	$	38,238	$	-
Obligations of states and political subdivisions		119,942		119,942		-
Collateralized mortgage obligations		20,569		20,569		-
Mortgage-backed securities		89,088		89,088		-
Corporate bonds		6,000		6,000		-
Total	$	273,837	$	273,837	$	-
Liabilities:
Derivatives		752	$	-	$	752
Total	$	752	$	-	$	752

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

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

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

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	Liabilities Derivatives		Liabilities Derivatives		Liabilities Derivatives		Liabilities Derivatives
Beginning balance	$	752	$	932	$	752	$	932
Net change		-		-		-		-
Ending balance	$	752	$	932	$	752	$	932

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LOANS, Loans by Internal Assigned Grade for Credit Risk (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Financing Receivable, Impaired [Line Items]
Number of consecutive years	5 years
Minimum repayment period	2 years
Threshold loan amount for annual rating review	$ 750
Credit risk profile by internally assigned grade [Abstract]
Total	$ 1,476,626	$ 1,355,427
Total (in hundredths)	100.00%	100.00%
Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	$ 1,443,544	$ 1,315,247
Total (in hundredths)	97.80%	97.00%
Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	$ 15,466	$ 10,407
Total (in hundredths)	1.00%	0.80%
Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	$ 17,616	$ 29,773
Total (in hundredths)	1.20%	2.20%
Commercial and Industrial [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	$ 196,881	$ 177,813
Commercial and Industrial [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	182,614	167,922
Commercial and Industrial [Member] | Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	3,898	1,225
Commercial and Industrial [Member] | Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	10,369	8,666
Commercial Real Estate [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	598,866	560,524
Commercial Real Estate [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	582,851	536,536
Commercial Real Estate [Member] | Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	11,568	9,182
Commercial Real Estate [Member] | Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	4,447	14,806
Multifamily [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	361,309	309,666
Multifamily [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	361,309	309,666
Multifamily [Member] | Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	0	0
Multifamily [Member] | Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	0	0
Mixed Use Commercial [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	50,372	34,806
Mixed Use Commercial [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	50,356	34,806
Mixed Use Commercial [Member] | Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	0	0
Mixed Use Commercial [Member] | Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	16	0
Real Estate Construction [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	31,628	26,206
Real Estate Construction [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	31,628	26,206
Real Estate Construction [Member] | Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	0	0
Real Estate Construction [Member] | Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	0	0
Residential Mortgages [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	182,828	187,828
Residential Mortgages [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	180,564	183,263
Residential Mortgages [Member] | Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	0	0
Residential Mortgages [Member] | Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	2,264	4,565
Home Equity [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	48,298	50,982
Home Equity [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	47,943	49,569
Home Equity [Member] | Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	0	0
Home Equity [Member] | Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	355	1,413
Consumer [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	6,444	7,602
Consumer [Member] | Pass [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	6,279	7,279
Consumer [Member] | Special Mention [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	0	0
Consumer [Member] | Substandard [Member]
Credit risk profile by internally assigned grade [Abstract]
Total	$ 165	$ 323

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FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015 USD ($) shares	Jun. 30, 2014 shares	Jun. 30, 2015 USD ($) Corporation shares	Jun. 30, 2014 shares
Summary of Significant Accounting Policies [Abstract]
Ownership percentage (in hundredths)	100.00%		100.00%
Number of corporation used to acquire foreclosed real estate | Corporation			2
Weighted Average Number of Shares Outstanding Reconciliation [Abstract]
Weighted average common shares outstanding (in shares)	11,630,056	11,575,322	11,616,565	11,574,174
Weighted average unvested restricted shares (in shares)	118,012	0	104,831	0
Weighted average shares for basic earnings per share	11,748,068	11,575,322	11,721,396	11,574,174
Additional diluted shares [Abstract]
Stock options (in shares)	74,494	72,599	71,911	65,124
Weighted average shares for diluted earnings per share (in shares)	11,822,562	11,647,921	11,793,307	11,639,298
Loans and Loan Interest Income Recognition [Abstract]
Maximum period for accrued interest for all class of loans			90 days
Allowance for Loan Losses [Abstract]
Threshold for non-accrual loans to be evaluated individually for impairment | $	$ 250		$ 250

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ACCUMULATED OTHER COMPREHENSIVE INCOME ("AOCI") (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	$ (5,727)	$ (4,201)	$ (6,843)	$ (7,289)
Other comprehensive (loss) income before reclassifications	(1,507)	2,047	(417)	5,114
Amounts reclassified from AOCI	(57)	46	(31)	67
Net other comprehensive (loss) income	(1,564)	2,093	(448)	5,181
Ending balance	(7,291)	(2,108)	(7,291)	(2,108)
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net gain (loss) on sale of securities available for sale	160	(23)	186	(23)
Interest income - U.S. Government agency obligations	(531)	(591)	(1,072)	(1,219)
Income tax expense	1,579	1,047	2,820	2,158
Net income	(5,118)	(3,771)	(9,127)	(7,491)
Reclassification Out of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net gain (loss) on sale of securities available for sale	160	(23)	186	(23)
Interest income - U.S. Government agency obligations	(67)	(54)	(134)	(86)
Income tax expense	(36)	31	(21)	42
Net income	57	(46)	31	(67)
Unrealized Gains and Losses on Available for Sale Securities [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	3,712	605	2,637	(4,095)
Other comprehensive (loss) income before reclassifications	(1,507)	2,357	(417)	7,057
Amounts reclassified from AOCI	(97)	14	(112)	14
Net other comprehensive (loss) income	(1,604)	2,371	(529)	7,071
Ending balance	2,108	2,976	2,108	2,976
Unrealized Losses on Securities Transferred from Available for Sale to Held to Maturity [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	(1,764)	(1,612)	(1,805)	0
Other comprehensive (loss) income before reclassifications	0	(310)	0	(1,943)
Amounts reclassified from AOCI	40	32	81	53
Net other comprehensive (loss) income	40	(278)	81	(1,890)
Ending balance	(1,724)	(1,890)	(1,724)	(1,890)
Pension and Post-Retirement Plan Items [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	(7,675)	(3,194)	(7,675)	(3,194)
Other comprehensive (loss) income before reclassifications	0	0	0	0
Amounts reclassified from AOCI	0	0	0	0
Net other comprehensive (loss) income	0	0	0	0
Ending balance	$ (7,675)	$ (3,194)	$ (7,675)	$ (3,194)

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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (Parenthetical) - $ / shares	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) [Abstract]
Dividend reinvestment (in shares)	15,249
Stock options exercised (in shares)	(32,667)	(3,334)
Stock-based compensation (in shares)	60,784	76,750
Cash dividend on common stock (in dollars per share)	$ 0.12

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INVESTMENT SECURITIES, Amortized Cost, Estimated Values and Gross Unrealized Gains and Losses (Details) - USD ($) $ in Thousands	6 Months Ended		12 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
INVESTMENT SECURITIES [Abstract]
Investment securities transferred from available for sale to held to maturity, fair value	$ 0	$ 48,147	$ 48,000
Investment securities transferred from available for sale to held to maturity, unrealized gain (loss)			(3,200)
Available for sale [Abstract]
Amortized Cost	270,353		294,310
Gross Unrealized Gains	5,867		7,070
Gross Unrealized Losses	(2,383)		(2,710)
Investment securities available for sale	273,837		298,670
Held to maturity [Abstract]
Amortized Cost	63,618		62,270
Gross Unrealized Gains	2,243		2,526
Gross Unrealized Losses	(10)		0
Fair Value	65,851		64,796
Total investment securities [Abstract]
Total investment securities, Amortized Cost	333,971		356,580
Total Gross Unrealized Gains	8,110		9,596
Total Gross Unrealized Losses	(2,393)		(2,710)
Total investment securities, Fair Value	339,688		363,466
Investment securities pledged	268,000		245,000
U.S. Government Agency Securities [Member]
Available for sale [Abstract]
Amortized Cost	38,975		42,474
Gross Unrealized Gains	0		0
Gross Unrealized Losses	(737)		(897)
Investment securities available for sale	38,238		41,577
Obligations of States and Political Subdivisions [Member]
Available for sale [Abstract]
Amortized Cost	114,278		131,300
Gross Unrealized Gains	5,664		6,469
Gross Unrealized Losses	0		0
Investment securities available for sale	119,942		137,769
Collateralized Mortgage Obligations [Member]
Available for sale [Abstract]
Amortized Cost	20,824		22,105
Gross Unrealized Gains	175		423
Gross Unrealized Losses	(430)		(531)
Investment securities available for sale	20,569		21,997
Mortgage-Backed Securities [Member]
Available for sale [Abstract]
Amortized Cost	90,276		92,095
Gross Unrealized Gains	28		88
Gross Unrealized Losses	(1,216)		(1,264)
Investment securities available for sale	89,088		90,919
Corporate Bonds [Member]
Available for sale [Abstract]
Amortized Cost	6,000		6,336
Gross Unrealized Gains	0		90
Gross Unrealized Losses	0		(18)
Investment securities available for sale	6,000		6,408
U.S. Government Agency Securities [Member]
Held to maturity [Abstract]
Amortized Cost	48,499		48,365
Gross Unrealized Gains	1,478		1,717
Gross Unrealized Losses	(10)		0
Fair Value	49,967		50,082
Obligations of States and Political Subdivisions [Member]
Held to maturity [Abstract]
Amortized Cost	12,119		13,905
Gross Unrealized Gains	642		809
Gross Unrealized Losses	0		0
Fair Value	12,761		14,714
Corporate Bonds [Member]
Held to maturity [Abstract]
Amortized Cost	3,000		0
Gross Unrealized Gains	123		0
Gross Unrealized Losses	0		0
Fair Value	$ 3,123		$ 0

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LOANS, Loans Modified as Troubled Debt Restructurings (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015 USD ($) Loan	Jun. 30, 2014 USD ($) Loan	Jun. 30, 2015 USD ($) Loan	Jun. 30, 2014 USD ($) Loan	Dec. 31, 2014 USD ($) Loan
Financing Receivable, Modifications [Line Items]
Allocation of specific reserve regarding troubled debt restructuring	$ 747		$ 747		$ 790
Troubled debt restructuring funds committed	$ 45		$ 45		$ 100
Troubled debt restructuring at end of period [Abstract]
Number of Loans | Loan	62		62		70
Outstanding Recorded Balance	$ 12,932		$ 12,932		$ 19,673
Troubled debt restructured during year [Abstract]
Number of Loans | Loan	1	17	4	20
Pre-Modification, Outstanding Recorded Balance	$ 323	$ 7,142	$ 529	$ 7,519
Post-modification, Outstanding Recorded Balance	$ 323	$ 7,142	$ 534	$ 7,519
Defaulted Troubled Debt Restructurings [Member]
Troubled debt restructured during year [Abstract]
Number of Loans | Loan	1	0	1	2
Pre-Modification, Outstanding Recorded Balance	$ 46	$ 0	$ 46	$ 1,566
Commercial and Industrial [Member]
Troubled debt restructuring at end of period [Abstract]
Number of Loans | Loan	24		24		31
Outstanding Recorded Balance	$ 1,885		$ 1,885		$ 3,683
Troubled debt restructured during year [Abstract]
Number of Loans | Loan	1	7	2	10
Pre-Modification, Outstanding Recorded Balance	$ 323	$ 1,500	$ 335	$ 1,877
Post-modification, Outstanding Recorded Balance	$ 323	$ 1,500	$ 335	$ 1,877
Commercial Real Estate [Member]
Troubled debt restructuring at end of period [Abstract]
Number of Loans | Loan	6		6		8
Outstanding Recorded Balance	$ 5,126		$ 5,126		$ 10,179
Troubled debt restructured during year [Abstract]
Number of Loans | Loan	0	2	0	2
Pre-Modification, Outstanding Recorded Balance	$ 0	$ 5,161	$ 0	$ 5,161
Post-modification, Outstanding Recorded Balance	$ 0	$ 5,161	$ 0	$ 5,161
Commercial Real Estate [Member] | Defaulted Troubled Debt Restructurings [Member]
Troubled debt restructured during year [Abstract]
Number of Loans | Loan	0	0	0	2
Pre-Modification, Outstanding Recorded Balance	$ 0	$ 0	$ 0	$ 1,566
Residential Mortgages [Member]
Troubled debt restructuring at end of period [Abstract]
Number of Loans | Loan	20		20		19
Outstanding Recorded Balance	$ 4,444		$ 4,444		$ 4,314
Troubled debt restructured during year [Abstract]
Number of Loans | Loan	0	3	2	3
Pre-Modification, Outstanding Recorded Balance	$ 0	$ 273	$ 194	$ 273
Post-modification, Outstanding Recorded Balance	$ 0	$ 273	$ 199	$ 273
Home Equity [Member]
Troubled debt restructuring at end of period [Abstract]
Number of Loans | Loan	5		5		5
Outstanding Recorded Balance	$ 1,204		$ 1,204		$ 1,216
Troubled debt restructured during year [Abstract]
Number of Loans | Loan	0	2	0	2
Pre-Modification, Outstanding Recorded Balance	$ 0	$ 109	$ 0	$ 109
Post-modification, Outstanding Recorded Balance	$ 0	$ 109	$ 0	$ 109
Consumer [Member]
Troubled debt restructuring at end of period [Abstract]
Number of Loans | Loan	7		7		7
Outstanding Recorded Balance	$ 273		$ 273		$ 281
Troubled debt restructured during year [Abstract]
Number of Loans | Loan	0	3	0	3
Pre-Modification, Outstanding Recorded Balance	$ 0	$ 99	$ 0	$ 99
Post-modification, Outstanding Recorded Balance	$ 0	$ 99	$ 0	$ 99
Consumer [Member] | Defaulted Troubled Debt Restructurings [Member]
Troubled debt restructured during year [Abstract]
Number of Loans | Loan	1	0	1	0
Pre-Modification, Outstanding Recorded Balance	$ 46	$ 0	$ 46	$ 0

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FAIR VALUE, Reconciliations for Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3) (Details) - Liabilities Derivatives [Member] - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) [Rollforward]
Beginning balance	$ 752	$ 932	$ 752	$ 932
Net change	0	0	0	0
Ending balance	$ 752	$ 932	$ 752	$ 932

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CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Cash and cash equivalents
Cash and non-interest-bearing deposits due from banks	$ 78,344	$ 41,140
Interest-bearing deposits due from banks	18,650	13,376
Federal funds sold	0	1,000
Total cash and cash equivalents	96,994	55,516
Interest-bearing time deposits in other banks	0	10,000
Federal Reserve and Federal Home Loan Bank stock and other investments	6,177	8,600
Investment securities:
Available for sale, at fair value	273,837	298,670
Held to maturity (fair value of $65,851 and $64,796, respectively)	63,618	62,270
Total investment securities	337,455	360,940
Loans	1,476,626	1,355,427
Allowance for loan losses	20,051	19,200
Net loans	1,456,575	1,336,227
Loans held for sale	3,132	26,495
Premises and equipment, net	23,601	23,641
Bank owned life insurance	45,721	45,109
Deferred taxes	15,681	15,714
Accrued interest and loan fees receivable	5,774	5,676
Goodwill and other intangibles	2,992	2,991
Other assets	4,118	4,374
TOTAL ASSETS	1,998,220	1,895,283
LIABILITIES & STOCKHOLDERS' EQUITY
Demand deposits	766,444	683,634
Savings, N.O.W. and money market deposits	709,450	653,667
Subtotal core deposits	1,475,894	1,337,301
Time deposits	242,500	218,759
Total deposits	1,718,394	1,556,060
Borrowings	65,000	130,000
Unfunded pension liability	6,081	6,303
Capital leases	4,455	4,511
Other liabilities	13,139	15,676
TOTAL LIABILITIES	$ 1,807,069	$ 1,712,550
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock (par value $2.50; 15,000,000 shares authorized; 13,945,208 shares and 13,836,508 shares issued at June 30, 2015 and December 31, 2014, respectively; 11,779,470 shares and 11,670,770 shares outstanding at June 30, 2015 and December 31, 2014, respectively)	$ 34,863	$ 34,591
Surplus	45,102	44,230
Retained earnings	123,891	116,169
Treasury stock at par (2,165,738 shares)	(5,414)	(5,414)
Accumulated other comprehensive loss, net of tax	(7,291)	(6,843)
TOTAL STOCKHOLDERS' EQUITY	191,151	182,733
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 1,998,220	$ 1,895,283

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EMPLOYEE BENEFITS (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014	Dec. 31, 2012
EMPLOYEE BENEFITS [Abstract]
Additional minimum required contribution for the pension plan						$ 0
Net periodic pension credit	$ (111)	$ (91)	$ (222)	$ (182)
Optional required contribution for pension plan					$ 1,000
Minimum required contribution for the pension plan					$ 0

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) [Abstract]
Change in unrealized gain (loss) on securities available for sale, tax	$ (1,049)	$ 1,586	$ (346)	$ 4,267
Change in unrealized gain (loss) on securities transferred, tax	$ 26	$ (307)	$ 53	$ (1,227)

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INVESTMENT SECURITIES, Other Disclosures (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2013	Dec. 31, 2014
Investment securities other disclosures [Abstract]
Sale of Visa Class B equity securities (in shares)					100,000
Proceeds from sale of Visa Shares					$ 7,800
Contingent liability from counterparty estimated future exposure from Visa litigation	$ 752		$ 752			$ 752
Carrying Costs For Visa Litigation Expensed In The Period	71	$ 56	141	$ 115
US Government agency securities held as available-for-sale pledged as collateral	$ 3,000		$ 3,000			$ 3,000
Shares of Visa Class B securities held (in shares)	38,638		38,638

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FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2015

FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES [Abstract]

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

The reconciliation of basic and diluted weighted average number of common shares outstanding for the three and six months ended June 30, 2015 and 2014 follows.

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Weighted average common shares outstanding		11,630,056		11,575,322		11,616,565		11,574,174
Weighted average unvested restricted shares		118,012		-		104,831		-
Weighted average shares for basic earnings per share		11,748,068		11,575,322		11,721,396		11,574,174
Additional diluted shares:
Stock options		74,494		72,599		71,911		65,124
Weighted average shares for diluted earnings per share		11,822,562		11,647,921		11,793,307		11,639,298

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LOANS (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013
Categorized total loans [Abstract]
Gross Loans	$ 1,476,626		$ 1,355,427
Allowance for loan losses	(20,051)	$ (19,325)	(19,200)	$ (18,478)	$ (17,737)	$ (17,263)
Net loans	1,456,575		1,336,227
Commercial and Industrial [Member]
Categorized total loans [Abstract]
Gross Loans	196,881		177,813
Allowance for loan losses	(2,073)	(1,998)	(1,560)	(2,932)	(2,481)	(2,615)
Commercial Real Estate [Member]
Categorized total loans [Abstract]
Gross Loans	598,866		560,524
Allowance for loan losses	(6,000)	(7,352)	(6,777)	(7,899)	(7,208)	(6,572)
Multifamily [Member]
Categorized total loans [Abstract]
Gross Loans	361,309		309,666
Allowance for loan losses	(4,065)	(4,467)	(4,018)	(2,444)	(2,640)	(2,159)
Mixed Use Commercial [Member]
Categorized total loans [Abstract]
Gross Loans	50,372		34,806
Allowance for loan losses	(465)	(273)	(261)	(212)	(87)	(54)
Real Estate Construction [Member]
Categorized total loans [Abstract]
Gross Loans	31,628		26,206
Allowance for loan losses	(478)	(360)	(383)	(230)	(217)	(88)
Residential Mortgages [Member]
Categorized total loans [Abstract]
Gross Loans	182,828		187,828
Allowance for loan losses	(2,571)	(2,618)	(3,027)	(2,650)	(2,627)	(2,463)
Home Equity [Member]
Categorized total loans [Abstract]
Gross Loans	48,298		50,982
Allowance for loan losses	(672)	$ (728)	(709)	$ (761)	$ (718)	$ (745)
Consumer [Member]
Categorized total loans [Abstract]
Gross Loans	6,444		7,602
Allowance for loan losses	$ (150)		$ (166)

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INVESTMENT SECURITIES (Tables)

6 Months Ended

Jun. 30, 2015

INVESTMENT SECURITIES [Abstract]

Amortized cost, estimated fair values, and gross unrealized gains and losses of securities available for sale and held to maturity

The amortized cost, fair value and gross unrealized gains and losses of the Company’s investment securities available for sale and held to maturity at June 30, 2015 and December 31, 2014 were as follows (in thousands):

	June 30, 2015									December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale:
U.S. Government agency securities	$	38,975	$	-	$	(737	)	$	38,238	$	42,474	$	-	$	(897	)	$	41,577
Obligations of states and political subdivisions		114,278		5,664		-			119,942		131,300		6,469		-			137,769
Collateralized mortgage obligations		20,824		175		(430	)		20,569		22,105		423		(531	)		21,997
Mortgage-backed securities		90,276		28		(1,216	)		89,088		92,095		88		(1,264	)		90,919
Corporate bonds		6,000		-		-			6,000		6,336		90		(18	)		6,408
Total available for sale securities		270,353		5,867		(2,383	)		273,837		294,310		7,070		(2,710	)		298,670
Held to maturity:
U.S. Government agency securities		48,499		1,478		(10	)		49,967		48,365		1,717		-			50,082
Obligations of states and political subdivisions		12,119		642		-			12,761		13,905		809		-			14,714
Corporate bonds		3,000		123		-			3,123		-		-		-			-
Total held to maturity securities		63,618		2,243		(10	)		65,851		62,270		2,526		-			64,796
Total investment securities	$	333,971	$	8,110	$	(2,393	)	$	339,688	$	356,580	$	9,596	$	(2,710	)	$	363,466

Investment securities amortized cost, maturities, and approximate fair value

The amortized cost, contractual maturities and fair value of the Company’s investment securities at June 30, 2015 (in thousands) are presented in the table below. Collateralized mortgage obligations (“CMOs”) and mortgage-backed securities (“MBS”) assume maturity dates pursuant to average lives.

	June 30, 2015
	Amortized Cost		Fair Value
Securities available for sale:
Due in one year or less	$	30,745	$	31,271
Due from one to five years		142,658		146,416
Due from five to ten years		96,950		96,150
Total securities available for sale		270,353		273,837
Securities held to maturity:
Due in one year or less		837		866
Due from one to five years		4,593		4,910
Due from five to ten years		32,097		32,711
Due after ten years		26,091		27,364
Total securities held to maturity		63,618		65,851
Total investment securities	$	333,971	$	339,688

Proceeds from sales of securities available for sale and the associated realized securities gains and losses

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

	Three Months Ended June 30,					Six Months Ended June 30,
	2015		2014			2015		2014
Proceeds	$	6,472	$	20,604		$	7,003	$	20,604
Gross realized gains	$	175	$	229		$	201	$	229
Gross realized losses		15		252			15		252
Net realized gains (losses)	$	160	$	(23	)	$	186	$	(23	)

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

Information pertaining to securities with unrealized losses at June 30, 2015 and December 31, 2014, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows (in thousands):

	Less than 12 months					12 months or longer					Total
June 30, 2015	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Government agency securities	$	23,487	$	(341	)	$	19,593	$	(406	)	$	43,080	$	(747	)
Collateralized mortgage obligations		-		-			8,274		(430	)		8,274		(430	)
Mortgage-backed securities		50,848		(621	)		26,604		(595	)		77,452		(1,216	)
Total	$	74,335	$	(962	)	$	54,471	$	(1,431	)	$	128,806	$	(2,393	)

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

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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) - USD ($) $ in Thousands	Common stock [Member]	Surplus [Member]	Retained earnings [Member]	Treasury stock [Member]	Accumulated other comprehensive loss, net of tax [Member]	Total
Balance at Dec. 31, 2013	$ 34,348	$ 43,280	$ 102,273	$ (5,414)	$ (7,289)
Net income			7,491			$ 7,491
Dividend reinvestment	0	0
Stock options exercised	8	42
Stock-based compensation	192	193
Other comprehensive (loss) income					5,181	12,672
Cash dividends on common stock ($0.12 per share in 2015)			0
Balance at Jun. 30, 2014	34,548	43,515	109,764	(5,414)	(2,108)	180,305
Balance at Dec. 31, 2014	34,591	44,230	116,169	(5,414)	(6,843)	182,733
Net income			9,127			9,127
Dividend reinvestment	38	307
Stock options exercised	82	380
Stock-based compensation	152	185
Other comprehensive (loss) income					(448)	8,679
Cash dividends on common stock ($0.12 per share in 2015)			(1,405)
Balance at Jun. 30, 2015	$ 34,863	$ 45,102	$ 123,891	$ (5,414)	$ (7,291)	$ 191,151

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CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED) (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Investment securities:
Held to maturity, fair value	$ 65,851	$ 64,796
STOCKHOLDERS' EQUITY
Common Stock, par value (in dollars per share)	$ 2.50	$ 2.50
Common Stock, shares authorized (in shares)	15,000,000	15,000,000
Common Stock, shares issued (in shares)	13,945,208	13,836,508
Common Stock, shares outstanding (in shares)	11,779,470	11,670,770
Treasury Stock, shares (in shares)	2,165,738	2,165,738

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REGULATORY MATTERS

6 Months Ended

Jun. 30, 2015

REGULATORY MATTERS [Abstract]

REGULATORY MATTERS

8. REGULATORY MATTERS

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital requirements that involve quantitative measures of the Company’s and the Bank’s assets, liabilities and certain off-balance sheet items calculated under regulatory accounting practices. The Company’s and the Bank’s capital amounts and the Bank’s classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of total, tier 1 and common equity tier 1 capital, as defined in the federal banking regulations, to risk-weighted assets and of tier 1 capital to adjusted average assets (leverage). Management believes, as of June 30, 2015, that the Company and the Bank met all such capital adequacy requirements to which it is subject.

In July 2013, the Office of the Comptroller of the Currency (“OCC”) approved new rules on regulatory capital applicable to national banks, implementing Basel III. Most banking organizations were required to apply the new capital rules on January 1, 2015. The final rules set a new common equity tier 1 requirement and higher minimum tier 1 requirements for all banking organizations. They also place limits on capital distributions and certain discretionary bonus payments if a banking organization does not maintain a buffer of common equity tier 1 capital above minimum capital requirements. The rules revise the prompt corrective action framework to incorporate the new regulatory capital minimums. They also enhance risk sensitivity and address weaknesses identified over recent years with the measure of risk-weighted assets, including through new measures of creditworthiness to replace references to credit ratings, consistent with section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The Company’s implementation of the new rules on January 1, 2015 did not have a material impact on our capital needs.

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

	Actual capital ratios					Minimum for capital adequacy					Minimum to be Well Capitalized under prompt corrective action provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
June 30, 2015
Total capital to risk-weighted assets	$	212,021		13.08	%	$	129,658		8.00	%	$	162,073		10.00	%
Tier 1 capital to risk-weighted assets		191,761		11.83	%		97,244		6.00	%		129,658		8.00	%
Common equity tier 1 capital to risk-weighted assets		191,761		11.83	%		72,933		4.50	%		105,347		6.50	%
Tier 1 capital to adjusted average assets (leverage)		191,761		9.95	%		77,107		4.00	%		96,384		5.00	%
December 31, 2014
Total capital to risk-weighted assets	$	201,476		13.25	%	$	121,608		8.00	%	$	152,010		10.00	%
Tier 1 capital to risk-weighted assets		182,469		12.00	%		60,804		4.00	%		91,206		6.00	%
Tier 1 capital to adjusted average assets (leverage)		182,469		9.96	%		73,312		4.00	%		91,640		5.00	%

The Company’s tier 1 leverage, common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios were 10.10%, 12.01%, 12.01% and 13.26%, respectively, at June 30, 2015. The Company’s tier 1 leverage, tier 1 risk-based and total risk-based capital ratios were 10.04%, 12.10% and 13.35%, respectively, at December 31, 2014.

The ability of the Bank to pay dividends to the Company is subject to certain regulatory restrictions. Generally, dividends declared in a given year by a national bank are limited to its net profit, as defined by regulatory agencies, for that year, combined with its retained net income for the preceding two years, less any required transfer to surplus or to fund for the retirement of any preferred stock. In addition, a national bank may not pay dividends in an amount greater than its undivided profits or declare any dividends if such declaration would leave the bank inadequately capitalized.

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Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2015	Jul. 15, 2015
Document and Entity Information [Abstract]
Entity Registrant Name	SUFFOLK BANCORP
Entity Central Index Key	0000754673
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		11,779,468
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2015

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FAIR VALUE

6 Months Ended

Jun. 30, 2015

FAIR VALUE [Abstract]

FAIR VALUE

9. FAIR VALUE

Fair value measurement is determined based on the assumptions that market participants would use in pricing the asset or liability in an exchange. The definition of fair value includes the exchange price which is the price in an orderly transaction between market participants to sell an asset or transfer a liability in the principal market for the asset or liability. Market participant assumptions include assumptions about risk, the risk inherent in a particular valuation technique used to measure fair value and/or the risk inherent in the inputs to the valuation technique, as well as the effect of credit risk on the fair value of liabilities. The Company uses three levels of the fair value inputs to measure assets, as described below.

Basis of Fair Value Measurement:

Level 1 – Valuations based on quoted prices in active markets for identical investments.

Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Level 2 inputs include: (i) quoted prices for similar investments in active markets, (ii) quoted prices for identical investments traded in non-active markets (i.e., dealer or broker markets) and (iii) inputs other than quoted prices that are observable or inputs derived from or corroborated by market data for substantially the full term of the investment.

Level 3 – Valuations based on inputs that are unobservable, supported by little or no market activity, and significant to the overall fair value measurement.

The types of instruments valued based on quoted market prices in active markets include most U.S. Treasury securities. Such instruments are generally classified within Level 1 and Level 2 of the fair value hierarchy. The Company does not adjust the quoted price for such instruments.

The types of instruments valued based on quoted prices in markets that are not active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency include U.S. Government agency securities, state and municipal obligations, MBS, CMOs and corporate bonds. Such instruments are generally classified within Level 2 of the fair value hierarchy.

The types of instruments valued based on significant unobservable inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability are generally classified within Level 3 of the fair value hierarchy.

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

	Level in		June 30, 2015				December 31, 2014
	Fair Value Hierarchy		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets:
Cash and due from banks	Level 1		$	96,994	$	96,994	$	54,516	$	54,516
Federal funds sold	Level 2			-		-		1,000		1,000
Interest-bearing time deposits in other banks	Level 2			-		-		10,000		10,017
Federal Reserve and Federal Home Loan Bank stock and other investments	N/	A		6,177		N/A		8,600		N/A
Investment securities held to maturity	Level 2			63,618		65,851		62,270		64,796
Investment securities available for sale	Level 2			273,837		273,837		298,670		298,670
Loans held for sale	Level 2			3,132		3,132		26,495		26,495
Loans, net of allowance	Level 2, 3 (1)			1,456,575		1,447,839		1,336,227		1,329,041
Accrued interest and loan fees receivable	Level 2			5,774		5,774		5,676		5,676
Financial Liabilities:
Non-maturity deposits	Level 2			1,475,894		1,475,894		1,337,301		1,337,301
Time deposits	Level 2			242,500		242,927		218,759		219,089
Borrowings	Level 2			65,000		64,845		130,000		130,004
Accrued interest payable	Level 2			186		186		136		136
Derivatives	Level 3			752		752		752		752

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

Fair value estimates are made at a specific point in time and may be based on judgments regarding losses expected in the future, risk, and other factors that are subjective in nature. The methods and assumptions used to produce the fair value estimates follow.

For securities held to maturity and securities available for sale, the fair value equals quoted market price if available. If a quoted market price is not available, fair value is estimated using a quoted market price for similar securities. For cash and due from banks, federal funds sold, accrued interest and loan fees receivable, non-maturity deposits and accrued interest payable, the carrying amount is a reasonable estimate of fair value. Determining the fair value of Federal Reserve and Federal Home Loan Bank stock and other investments is not practicable due to restrictions placed on its transferability. Interest-bearing time deposits in other banks, time deposits and borrowings are valued using a replacement cost of funds approach.

Fair values are estimated for portfolios of loans with similar characteristics. The fair value of performing loans was calculated by discounting projected cash flows through their estimated maturity using market discount rates that reflect the general credit and interest rate characteristics of the loan category. The maturity horizon is based on the Bank’s history of repayments for each type of loan and an estimate of the effect of current economic conditions. Assumptions regarding credit risk, cash flows, and discount rates are made using availablemarket information and specific borrower information.

Loans identified as impaired are measured using one of three methods: the fair value of collateral less estimated costs to sell, the present value of expected future cash flows or the loan’s observable market price. Those measured using the fair value of collateral or the loan’s observable market price are recorded at fair value. For each period presented, no impaired loans were measured using the loan’s observable market price. If an impaired loan has had a charge-off or if the fair value of the collateral is less than the recorded investment in the loan, the Company establishes a specific reserve and reports the loan as non-recurring Level 3. The fair value of collateral of impaired loans is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

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

During 2013, the Company entered into derivative swap contracts with the purchaser of its Visa Class B shares. The fair value of these derivatives is measured using an internal model that includes the use of probability weighted scenarios for estimates of Visa’s aggregate exposure to the litigation matters, with consideration of amounts funded by Visa into its escrow account for this litigation. At June 30, 2015, the Company estimates a fair value for these derivatives at approximately 10% of the net proceeds from the Company’s sale of the related Visa Class B shares. Since this estimation process requires application of judgment in developing significant unobservable inputs used to determine the possible outcomes and the probability weighting assigned to each scenario, these derivatives have been classified as Level 3 within the valuation hierarchy. (See also Note 3. Investment Securities contained herein.)

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

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

Assets:	June 30, 2015		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Impaired loans	$	3,104	$	3,104
Total	$	3,104	$	3,104

Assets:	December 31, 2014		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Impaired loans	$	3,293	$	3,293
Total	$	3,293	$	3,293

The Company had no liabilities measured at fair value on a non-recurring basis at June 30, 2015 and December 31, 2014.

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

	Fair Value at
Assets:	June 30, 2015		December 31, 2014		Valuation Technique	Unobservable Inputs	Discount
Impaired loans:
Residential mortgages		2,905		3,097	Third party appraisal	Discount to appraised value		25	%	(1	)
Home equity		104		98	Third party appraisal	Discount to appraised value		25	%	(1	)
Consumer		95		98	Third party appraisal	Discount to appraised value		25	%	(2	)
Total	$	3,104	$	3,293

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

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

The following presents fair value measurements on a recurring basis at June 30, 2015 and December 31, 2014 (in thousands):

			Fair Value Measurements Using
Assets:	June 30, 2015		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government agency securities	$	38,238	$	38,238	$	-
Obligations of states and political subdivisions		119,942		119,942		-
Collateralized mortgage obligations		20,569		20,569		-
Mortgage-backed securities		89,088		89,088		-
Corporate bonds		6,000		6,000		-
Total	$	273,837	$	273,837	$	-
Liabilities:
Derivatives		752	$	-	$	752
Total	$	752	$	-	$	752

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

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

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	Liabilities Derivatives		Liabilities Derivatives		Liabilities Derivatives		Liabilities Derivatives
Beginning balance	$	752	$	932	$	752	$	932
Net change		-		-		-		-
Ending balance	$	752	$	932	$	752	$	932

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
INTEREST INCOME
Loans and loan fees	$ 15,995	$ 13,203	$ 30,564	$ 26,080
U.S. Government agency obligations	531	591	1,072	1,219
Obligations of states and political subdivisions	1,276	1,489	2,611	2,994
Collateralized mortgage obligations	176	224	358	474
Mortgage-backed securities	443	500	888	1,001
Corporate bonds	45	87	83	177
Federal funds sold, securities purchased under agreements to resell and interest-bearing deposits due from banks	20	42	43	88
Dividends	90	35	150	73
Total interest income	18,576	16,171	35,769	32,106
INTEREST EXPENSE
Saving, N.O.W. and money market deposits	294	287	568	579
Time deposits	353	337	647	682
Borrowings	108	5	216	5
Total interest expense	755	629	1,431	1,266
Net interest income	17,821	15,542	34,338	30,840
Provision for loan losses	0	250	250	500
Net interest income after provision for loan losses	17,821	15,292	34,088	30,340
NON-INTEREST INCOME
Service charges on deposit accounts	823	944	1,570	1,947
Other service charges, commissions and fees	680	892	1,273	1,571
Fiduciary fees	0	280	0	559
Net gain (loss) on sale of securities available for sale	160	(23)	186	(23)
Net gain on sale of portfolio loans	0	0	198	0
Net gain on sale of mortgage loans originated for sale	61	70	205	163
Net gain on sale of premises and equipment	0	110	0	752
Income from bank owned life insurance	303	366	612	720
Other operating income	23	39	97	81
Total non-interest income	2,050	2,678	4,141	5,770
OPERATING EXPENSES
Employee compensation and benefits	8,516	8,488	17,122	17,349
Occupancy expense	1,373	1,411	2,835	2,846
Equipment expense	404	434	789	883
Consulting and professional services	544	639	882	1,190
FDIC assessment	286	268	576	535
Data processing	514	559	1,084	1,132
Branch consolidation credits	0	(279)	0	(449)
Other operating expenses	1,537	1,632	2,994	2,975
Total operating expenses	13,174	13,152	26,282	26,461
Income before income tax expense	6,697	4,818	11,947	9,649
Income tax expense	1,579	1,047	2,820	2,158
NET INCOME	$ 5,118	$ 3,771	$ 9,127	$ 7,491
EARNINGS PER COMMON SHARE - BASIC (in dollars per shares)	$ 0.44	$ 0.33	$ 0.78	$ 0.65
EARNINGS PER COMMON SHARE - DILUTED (in dollars per shares)	$ 0.43	$ 0.32	$ 0.77	$ 0.64
WEIGHTED AVERAGE COMMON SHARES - BASIC (in shares)	11,748,068	11,575,322	11,721,396	11,574,174
WEIGHTED AVERAGE COMMON SHARES - DILUTED (in shares)	11,822,562	11,647,921	11,793,307	11,639,298
CASH DIVIDENDS DECLARED PER COMMON SHARE	$ 0.06	$ 0	$ 0.12	$ 0

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INVESTMENT SECURITIES

6 Months Ended

Jun. 30, 2015

INVESTMENT SECURITIES [Abstract]

INVESTMENT SECURITIES

3. INVESTMENT SECURITIES

At the time of purchase of a security, the Company designates the security as either available for sale or held to maturity, depending upon investment objectives, liquidity needs and intent. Securities held to maturity are stated at cost, adjusted for premium amortized or discount accreted, if any. The Company has the positive intent and ability to hold such securities to maturity. Securities available for sale are stated at estimated fair value. Unrealized gains and losses are excluded from income and reported net of tax in AOCI as a separate component of stockholders’ equity until realized. Changes in unrealized gains and losses are reported, net of tax, in the consolidated statements of comprehensive income. Interest earned on securities is included in interest income. Realized gains and losses on the sale of securities are reported in the consolidated statements of income and determined using the adjusted cost of the specific security sold.

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

The amortized cost, fair value and gross unrealized gains and losses of the Company’s investment securities available for sale and held to maturity at June 30, 2015 and December 31, 2014 were as follows (in thousands):

	June 30, 2015									December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale:
U.S. Government agency securities	$	38,975	$	-	$	(737	)	$	38,238	$	42,474	$	-	$	(897	)	$	41,577
Obligations of states and political subdivisions		114,278		5,664		-			119,942		131,300		6,469		-			137,769
Collateralized mortgage obligations		20,824		175		(430	)		20,569		22,105		423		(531	)		21,997
Mortgage-backed securities		90,276		28		(1,216	)		89,088		92,095		88		(1,264	)		90,919
Corporate bonds		6,000		-		-			6,000		6,336		90		(18	)		6,408
Total available for sale securities		270,353		5,867		(2,383	)		273,837		294,310		7,070		(2,710	)		298,670
Held to maturity:
U.S. Government agency securities		48,499		1,478		(10	)		49,967		48,365		1,717		-			50,082
Obligations of states and political subdivisions		12,119		642		-			12,761		13,905		809		-			14,714
Corporate bonds		3,000		123		-			3,123		-		-		-			-
Total held to maturity securities		63,618		2,243		(10	)		65,851		62,270		2,526		-			64,796
Total investment securities	$	333,971	$	8,110	$	(2,393	)	$	339,688	$	356,580	$	9,596	$	(2,710	)	$	363,466

At June 30, 2015 and December 31, 2014, investment securities carried at $268 million and $245 million, respectively, were pledged primarily for public funds on deposit and as collateral for the Company’s derivative swap contracts.

The amortized cost, contractual maturities and fair value of the Company’s investment securities at June 30, 2015 (in thousands) are presented in the table below. Collateralized mortgage obligations (“CMOs”) and mortgage-backed securities (“MBS”) assume maturity dates pursuant to average lives.

	June 30, 2015
	Amortized Cost		Fair Value
Securities available for sale:
Due in one year or less	$	30,745	$	31,271
Due from one to five years		142,658		146,416
Due from five to ten years		96,950		96,150
Total securities available for sale		270,353		273,837
Securities held to maturity:
Due in one year or less		837		866
Due from one to five years		4,593		4,910
Due from five to ten years		32,097		32,711
Due after ten years		26,091		27,364
Total securities held to maturity		63,618		65,851
Total investment securities	$	333,971	$	339,688

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

	Three Months Ended June 30,					Six Months Ended June 30,
	2015		2014			2015		2014
Proceeds	$	6,472	$	20,604		$	7,003	$	20,604
Gross realized gains	$	175	$	229		$	201	$	229
Gross realized losses		15		252			15		252
Net realized gains (losses)	$	160	$	(23	)	$	186	$	(23	)

Information pertaining to securities with unrealized losses at June 30, 2015 and December 31, 2014, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows (in thousands):

	Less than 12 months					12 months or longer					Total
June 30, 2015	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Government agency securities	$	23,487	$	(341	)	$	19,593	$	(406	)	$	43,080	$	(747	)
Collateralized mortgage obligations		-		-			8,274		(430	)		8,274		(430	)
Mortgage-backed securities		50,848		(621	)		26,604		(595	)		77,452		(1,216	)
Total	$	74,335	$	(962	)	$	54,471	$	(1,431	)	$	128,806	$	(2,393	)

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

All securities with unrealized losses for twelve months or longer at June 30, 2015 are issued or guaranteed by U.S. Government agencies or sponsored enterprises and the related unrealized losses resulted solely from the current interest rate environment and the corresponding shape of the yield curve. The Company does not intend to sell and it is not more likely than not that the Company will be required to sell these securities prior to their recovery to a level equal to or greater than amortized cost. Management has determined that no other-than-temporary impairment (“OTTI”) was present at June 30, 2015.

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

During 2013, the Bank sold 100,000 Visa Class B shares to another Visa USA member financial institution at a gross pre-tax gain of approximately $7.8 million which was recorded in non-interest income in the Company’s statement of income. In conjunction with the sale, the Company entered into derivative swap contracts with the purchaser of these Visa Class B shares which provide for settlements between the purchaser and the Company based upon a change in the conversion ratio of Visa Class B shares into Visa Class A shares. The Company’s recorded liability representing the fair value of the derivative was $752 thousand at June 30, 2015 and December 31, 2014.

The present value of estimated future fees to be paid to the derivative counterparty, or carrying costs, calculated by reference to the market price of the Visa Class A shares at a fixed rate of interest are expensed as incurred. For the three and six months ended June 30, 2015, $71 thousand and $141 thousand, respectively, in such carrying costs was expensed. For the three and six months ended June 30, 2014, $56 thousand and $115 thousand, respectively, was expensed. The Company has pledged U.S. Government agency securities held in its available for sale portfolio, with a market value of approximately $3 million at both June 30, 2015 and December 31, 2014, as collateral for the derivative swap contracts.

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

At June 30, 2015, the Company still owned 38,638 Visa Class B shares subsequent to the sales described here. Upon termination of the existing transfer restriction and settlement of the litigation, and to the extent that the Company continues to own such Visa Class B shares in the future, the Company expects to record its Visa Class B shares at fair value.

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ACCUMULATED OTHER COMPREHENSIVE INCOME ("AOCI")

6 Months Ended

Jun. 30, 2015

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

ACCUMULATED OTHER COMPREHENSIVE INCOME ("AOCI")

2. ACCUMULATED OTHER COMPREHENSIVE INCOME (“AOCI”)

The changes in the Company’s AOCI by component, net of tax, for the three and six months ended June 30, 2015 and 2014 follow (in thousands).

	Three Months Ended June 30, 2015												Three Months Ended June 30, 2014
	Unrealized Gains and Losses on Available for  Sale Securities			Unrealized Losses on Securities Transferred from Available for Sale  to Held to Maturity			Pension and Post- Retirement Plan Items			Total			Unrealized Gains and Losses on Available for Sale Securities		Unrealized Losses on Securities Transferred from Available for Sale to Held to Maturity			Pension and Post- Retirement Plan Items			Total
Beginning balance	$	3,712		$	(1,764	)	$	(7,675	)	$	(5,727	)	$	605	$	(1,612	)	$	(3,194	)	$	(4,201	)
Other comprehensive (loss) income before reclassifications		(1,507	)		-			-			(1,507	)		2,357		(310	)		-			2,047
Amounts reclassified from AOCI		(97	)		40			-			(57	)		14		32			-			46
Net other comprehensive (loss) income		(1,604	)		40			-			(1,564	)		2,371		(278	)		-			2,093
Ending balance	$	2,108		$	(1,724	)	$	(7,675	)	$	(7,291	)	$	2,976	$	(1,890	)	$	(3,194	)	$	(2,108	)

	Six Months Ended June 30, 2015												Six Months Ended June 30, 2014
	Unrealized Gains and Losses on Available for  Sale Securities			Unrealized Losses on Securities Transferred from Available for Sale to Held to Maturity			Pension and Post- Retirement Plan Items			Total			Unrealized Gains and Losses on Available for Sale Securities			Unrealized Losses  on Securities Transferred from Available for Sale to Held to  Maturity			Pension and Post- Retirement Plan Items			Total
Beginning balance	$	2,637		$	(1,805	)	$	(7,675	)	$	(6,843	)	$	(4,095	)	$	-		$	(3,194	)	$	(7,289	)
Other comprehensive (loss) income before reclassifications		(417	)		-			-			(417	)		7,057			(1,943	)		-			5,114
Amounts reclassified from AOCI		(112	)		81			-			(31	)		14			53			-			67
Net other comprehensive (loss) income		(529	)		81			-			(448	)		7,071			(1,890	)		-			5,181
Ending balance	$	2,108		$	(1,724	)	$	(7,675	)	$	(7,291	)	$	2,976		$	(1,890	)	$	(3,194	)	$	(2,108	)

Reclassifications out of AOCI for the three and six months ended June 30, 2015 and 2014 follow (in thousands).

	Amount Reclassified from AOCI
	Three Months Ended June 30,						Six Months Ended June 30,						Affected Line Item in the Statement
Details about AOCI Components	2015			2014			2015			2014			Where Net Income is Presented
Unrealized gains and losses on available for sale securities	$	160		$	(23	)	$	186		$	(23	)	Net gain (loss) on sale of securities available for sale
Unrealized losses on securities transferred from available for sale to held to maturity		(67	)		(54	)		(134	)		(86	)	Interest income - U.S. Government agency obligations
		(36	)		31			(21	)		42		Income tax expense
Total, net of tax	$	57		$	(46	)	$	31		$	(67	)

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

6 Months Ended

Jun. 30, 2015

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

Changes in AOCI by component, net of tax

The changes in the Company’s AOCI by component, net of tax, for the three and six months ended June 30, 2015 and 2014 follow (in thousands).

	Three Months Ended June 30, 2015												Three Months Ended June 30, 2014
	Unrealized Gains and Losses on Available for  Sale Securities			Unrealized Losses on Securities Transferred from Available for Sale  to Held to Maturity			Pension and Post- Retirement Plan Items			Total			Unrealized Gains and Losses on Available for Sale Securities		Unrealized Losses on Securities Transferred from Available for Sale to Held to Maturity			Pension and Post- Retirement Plan Items			Total
Beginning balance	$	3,712		$	(1,764	)	$	(7,675	)	$	(5,727	)	$	605	$	(1,612	)	$	(3,194	)	$	(4,201	)
Other comprehensive (loss) income before reclassifications		(1,507	)		-			-			(1,507	)		2,357		(310	)		-			2,047
Amounts reclassified from AOCI		(97	)		40			-			(57	)		14		32			-			46
Net other comprehensive (loss) income		(1,604	)		40			-			(1,564	)		2,371		(278	)		-			2,093
Ending balance	$	2,108		$	(1,724	)	$	(7,675	)	$	(7,291	)	$	2,976	$	(1,890	)	$	(3,194	)	$	(2,108	)

	Six Months Ended June 30, 2015												Six Months Ended June 30, 2014
	Unrealized Gains and Losses on Available for  Sale Securities			Unrealized Losses on Securities Transferred from Available for Sale to Held to Maturity			Pension and Post- Retirement Plan Items			Total			Unrealized Gains and Losses on Available for Sale Securities			Unrealized Losses  on Securities Transferred from Available for Sale to Held to  Maturity			Pension and Post- Retirement Plan Items			Total
Beginning balance	$	2,637		$	(1,805	)	$	(7,675	)	$	(6,843	)	$	(4,095	)	$	-		$	(3,194	)	$	(7,289	)
Other comprehensive (loss) income before reclassifications		(417	)		-			-			(417	)		7,057			(1,943	)		-			5,114
Amounts reclassified from AOCI		(112	)		81			-			(31	)		14			53			-			67
Net other comprehensive (loss) income		(529	)		81			-			(448	)		7,071			(1,890	)		-			5,181
Ending balance	$	2,108		$	(1,724	)	$	(7,675	)	$	(7,291	)	$	2,976		$	(1,890	)	$	(3,194	)	$	(2,108	)

Reclassifications out of AOCI

Reclassifications out of AOCI for the three and six months ended June 30, 2015 and 2014 follow (in thousands).

	Amount Reclassified from AOCI
	Three Months Ended June 30,						Six Months Ended June 30,						Affected Line Item in the Statement
Details about AOCI Components	2015			2014			2015			2014			Where Net Income is Presented
Unrealized gains and losses on available for sale securities	$	160		$	(23	)	$	186		$	(23	)	Net gain (loss) on sale of securities available for sale
Unrealized losses on securities transferred from available for sale to held to maturity		(67	)		(54	)		(134	)		(86	)	Interest income - U.S. Government agency obligations
		(36	)		31			(21	)		42		Income tax expense
Total, net of tax	$	57		$	(46	)	$	31		$	(67	)

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LEGAL PROCEEDINGS

6 Months Ended

Jun. 30, 2015

LEGAL PROCEEDINGS [Abstract]

LEGAL PROCEEDINGS

10. LEGAL PROCEEDINGS

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

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

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

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STOCK-BASED COMPENSATION

6 Months Ended

Jun. 30, 2015

STOCK-BASED COMPENSATION [Abstract]

STOCK-BASED COMPENSATION

6. STOCK-BASED COMPENSATION

Stock Options

Under the terms of the Company’s stock option plans adopted in 1999 and 2009, options have been granted to key employees and directors to purchase shares of the Company’s stock. Options are awarded by the Compensation Committee of the Board of Directors. Both plans provide that the option price shall not be less than the fair value of the common stock on the date the option is granted. All options are exercisable for a period of ten years or less.

No options were granted in 2015 or 2014. Options granted in 2013 and 2012 are exercisable over a three-year period commencing one year from the date of grant at a rate of one-third per year. Options granted in 2011 are exercisable over a three-year period commencing three years from the date of grant at a rate of one-third per year.

The total intrinsic value of options exercised during the first six months of 2015 and 2014 was $324 thousand and $24 thousand, respectively. The total cash received from such option exercises was $462 thousand and $50 thousand, respectively, excluding the tax benefit realized. In exercising those options, 32,667 shares and 3,334 shares, respectively, of the Company’s common stock were issued.

Both plans provide for but do not require the grant of stock appreciation rights (“SARs”) that the holder may exercise instead of the underlying option. At June 30, 2015, there were 6,000 SARs outstanding related to options granted before 2011. The SARs had no intrinsic value at June 30, 2015. When the SAR is exercised, the underlying option is canceled. The optionee receives shares of common stock or cash with a fair market value equal to the excess of the fair value of the shares subject to the option at the time of exercise (or the portion thereof so exercised) over the aggregate option price of the shares set forth in the option agreement. The exercise of SARs is treated as the exercise of the underlying option.

A summary of stock option activity follows:

	Number of Shares			Weighted-Average Exercise Price Per Share
Outstanding, January 1, 2015		251,100		$	16.33
Granted		-			-
Exercised		(32,667	)	$	14.12
Forfeited or expired		(16,666	)	$	19.67
Outstanding, June 30, 2015		201,767		$	16.42

The following summarizes shares subject to purchase from stock options outstanding and exercisable as of June 30, 2015:

	Outstanding					Exercisable
Range of Exercise Prices	Shares		Weighted-Average  Remaining  Contractual Life	Weighted-Average Exercise Price		Shares		Weighted-Average  Remaining  Contractual Life	Weighted-Average Exercise Price
$10.00 - $14.00		96,667	6.6 years	$	11.68		63,334	6.7 years	$	12.14
$14.01 - $20.00		83,100	8.1 years	$	17.80		32,438	8.0 years	$	17.36
$20.01 - $30.00		5,000	3.6 years	$	28.30		5,000	3.6 years	$	28.30
$30.01 - $40.00		17,000	1.5 years	$	33.12		17,000	1.5 years	$	33.12
		201,767	6.7 years	$	16.42		117,772	6.2 years	$	17.29

Restricted Stock Awards

Under the Company’s Amended and Restated 2009 Stock Incentive Plan (the “2009 Plan”), the Company can award options, SARs and restricted stock. During the first six months of 2015, the Company awarded 71,612 shares of restricted stock to certain key employees and directors. Generally, the restricted stock awards currently outstanding vest over a three-year period commencing one year from the date of grant at a rate of one-third per year. The fair value of the 22,213 restricted stock awards that vested during the first six months of 2015 was $500 thousand. Of the 22,213 vested shares, 4,787 were withheld to pay taxes due upon vesting. A summary of restricted stock activity follows:

	Number of Shares			Weighted-Average Grant-Date Fair Value
Nonvested, January 1, 2015		72,350		$	22.51
Granted		71,612		$	23.18
Vested		(22,213	)	$	22.51
Forfeited or expired		(6,041	)	$	22.52
Nonvested, June 30, 2015		115,708		$	22.92

The Company recognizes compensation expense for the fair value of stock options and restricted stock on a straight line basis over the requisite service period of the grants. Compensation expense related to stock-based compensation amounted to $337 thousand and $385 thousand for the six months ended June 30, 2015 and 2014, respectively. The remaining unrecognized compensation cost of approximately $137 thousand and $2.3 million at June 30, 2015 related to stock options and restricted stock, respectively, will be expensed over the remaining weighted average vesting period of approximately 1.3 years and 2.3 years, respectively.

Under the 2009 Plan, a total of 500,000 shares of the Company’s common stock were reserved for issuance, of which 159,030 shares remain for possible issuance at June 30, 2015. There are no remaining shares reserved for issuance under the 1999 Stock Option Plan.

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LOANS

6 Months Ended

Jun. 30, 2015

LOANS [Abstract]

LOANS

4. LOANS

At June 30, 2015 and December 31, 2014, net loans disaggregated by class consisted of the following (in thousands):

	June 30, 2015			December 31, 2014
Commercial and industrial	$	196,881		$	177,813
Commercial real estate		598,866			560,524
Multifamily		361,309			309,666
Mixed use commercial		50,372			34,806
Real estate construction		31,628			26,206
Residential mortgages		182,828			187,828
Home equity		48,298			50,982
Consumer		6,444			7,602
Gross loans		1,476,626			1,355,427
Allowance for loan losses		(20,051	)		(19,200	)
Net loans at end of period	$	1,456,575		$	1,336,227

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

	Three Months Ended June 30, 2015												Three Months Ended June 30, 2014
	Balance at beginning of period		Charge-offs			Recoveries		(Credit) provision for loan losses			Balance at end of period		Balance at  beginning of period		Charge-offs			Recoveries		Provision (credit) for loan losses			Balance at end of period
Commercial and industrial	$	1,998	$	-		$	693	$	(618	)	$	2,073	$	2,481	$	(200	)	$	210	$	441		$	2,932
Commercial real estate		7,352		-			11		(1,363	)		6,000		7,208		-			485		206			7,899
Multifamily		4,467		-			-		(402	)		4,065		2,640		-			-		(196	)		2,444
Mixed use commercial		273		-			-		192			465		87		-			-		125			212
Real estate construction		360		-			-		118			478		217		-			-		13			230
Residential mortgages		2,618		-			16		(63	)		2,571		2,627		(32	)		4		51			2,650
Home equity		728		-			5		(61	)		672		718		-			18		25			761
Consumer		155		(9	)		10		(6	)		150		186		(2	)		8		(26	)		166
Unallocated		1,374		-			-		2,203			3,577		1,573		-			-		(389	)		1,184
Total	$	19,325	$	(9	)	$	735	$	-		$	20,051	$	17,737	$	(234	)	$	725	$	250		$	18,478

	Six Months Ended June 30, 2015												Six Months Ended June 30, 2014
	Balance at beginning of  period		Charge-offs			Recoveries		(Credit)  provision  for loan  losses			Balance at end of period		Balance at beginning of period		Charge-offs			Recoveries		Provision (credit) for loan losses			Balance at end of period
Commercial and industrial	$	1,560	$	(492	)	$	1,036	$	(31	)	$	2,073	$	2,615	$	(315	)	$	503	$	129		$	2,932
Commercial real estate		6,777		-			18		(795	)		6,000		6,572		-			497		830			7,899
Multifamily		4,018		-			-		47			4,065		2,159		-			-		285			2,444
Mixed use commercial		261		-			-		204			465		54		-			-		158			212
Real estate construction		383		-			-		95			478		88		-			-		142			230
Residential mortgages		3,027		-			27		(483	)		2,571		2,463		(32	)		8		211			2,650
Home equity		709		-			7		(44	)		672		745		-			45		(29	)		761
Consumer		166		(10	)		15		(21	)		150		241		(4	)		13		(84	)		166
Unallocated		2,299		-			-		1,278			3,577		2,326		-			-		(1,142	)		1,184
Total	$	19,200	$	(502	)	$	1,103	$	250		$	20,051	$	17,263	$	(351	)	$	1,066	$	500		$	18,478

Factors considered by management in determining loan impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

The general component of the allowance covers non-impaired loans and is based on historical loss experience, adjusted for qualitative factors. These qualitative factors include consideration of the following:  levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures and practices; experience, ability, and depth of lending management and other relevant staff; local, regional and national economic trends and conditions; industry conditions; and effects of changes in credit concentrations.

At June 30, 2015 and December 31, 2014, the ending balance in the allowance for loan losses disaggregated by class and impairment methodology is as follows (in thousands). Also in the tables below are total loans at June 30, 2015 and December 31, 2014 disaggregated by class and impairment methodology (in thousands).

	Allowance for Loan Losses						Loan Balances
June 30, 2015	Individually evaluated for impairment		Collectively evaluated for impairment		Ending balance		Individually evaluated for impairment		Collectively evaluated for impairment		Ending balance
Commercial and industrial	$	5	$	2,068	$	2,073	$	2,848	$	194,033	$	196,881
Commercial real estate		-		6,000		6,000		5,357		593,509		598,866
Multifamily		-		4,065		4,065		-		361,309		361,309
Mixed use commercial		-		465		465		-		50,372		50,372
Real estate construction		-		478		478		-		31,628		31,628
Residential mortgages		779		1,792		2,571		5,639		177,189		182,828
Home equity		158		514		672		1,664		46,634		48,298
Consumer		85		65		150		392		6,052		6,444
Unallocated		-		3,577		3,577		-		-		-
Total	$	1,027	$	19,024	$	20,051	$	15,900	$	1,460,726	$	1,476,626

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

The following table presents the Company’s impaired loans disaggregated by class at June 30, 2015 and December 31, 2014 (in thousands).

	June 30, 2015						December 31, 2014
	Unpaid Principal Balance		Recorded Balance		Allowance Allocated		Unpaid Principal Balance		Recorded Balance		Allowance Allocated
With no allowance recorded:
Commercial and industrial	$	2,808	$	2,808	$	-	$	4,833	$	4,833	$	-
Commercial real estate		5,775		5,357		-		10,632		10,214		-
Residential mortgages		2,084		1,955		-		1,645		1,516		-
Home equity		1,402		1,402		-		1,377		1,377		-
Consumer		212		212		-		137		137		-
Subtotal		12,281		11,734		-		18,624		18,077		-
With an allowance recorded:
Commercial and industrial		41		40		5		57		56		16
Residential mortgages		3,684		3,684		779		3,906		3,906		809
Home equity		398		262		158		326		190		92
Consumer		180		180		85		185		186		88
Subtotal		4,303		4,166		1,027		4,474		4,338		1,005
Total	$	16,584	$	15,900	$	1,027	$	23,098	$	22,415	$	1,005

The following table presents the Company’s average recorded investment in impaired loans and the related interest income recognized disaggregated by class for the three and six months ended June 30, 2015 and 2014 (in thousands). No interest income was recognized on a cash basis on impaired loans for any of the periods presented. The interest income recognized on accruing impaired loans is shown in the following table.

	Three Months Ended June 30,								Six Months Ended June 30,
	2015				2014				2015				2014
	Average recorded investment in impaired loans		Interest income  recognized on impaired loans		Average recorded investment in impaired loans		Interest income  recognized on impaired loans		Average recorded investment in impaired  loans		Interest income recognized on impaired loans		Average recorded  investment in impaired loans		Interest income  recognized on  impaired loans
Commercial and industrial	$	3,170	$	226	$	7,290	$	292	$	3,857	$	259	$	7,428	$	551
Commercial real estate		9,461		549		11,167		56		9,832		599		11,361		155
Residential mortgages		5,644		41		5,021		40		5,528		79		5,028		76
Home equity		1,666		15		720		3		1,664		28		745		20
Consumer		395		3		204		5		389		6		188		7
Total	$	20,336	$	834	$	24,402	$	396	$	21,270	$	971	$	24,750	$	809

TDRs are modifications or renewals where the Company has granted a concession to a borrower in financial distress. The Company reviews all modifications and renewals for determination of TDR status. The Company allocated $747 thousand and $790 thousand of specific reserves to customers whose loan terms have been modified as TDRs as of June 30, 2015 and December 31, 2014, respectively. These loans involved the restructuring of terms to allow customers to mitigate the risk of default by meeting a lower payment requirement based upon their current cash flow. These may also include loans that renewed at existing contractual rates, but below market rates for comparable credit.

A total of $45 thousand and $100 thousand were committed to be advanced in connection with TDRs as of June 30, 2015 and December 31, 2014, respectively, representing the amount the Company is legally required to advance under existing loan agreements. These loans are not in default under the terms of the loan agreements and are accruing interest. It is the Company’s policy to evaluate advances on such loans on a case-by-case basis. Absent a legal obligation to advance pursuant to the terms of the loan agreement, the Company generally will not advance funds for which it has outstanding commitments, but may do so in certain circumstances.

Outstanding TDRs, disaggregated by class, at June 30, 2015 and December 31, 2014 are as follows (dollars in thousands):

	June 30, 2015				December 31, 2014
TDRs Outstanding	Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance
Commercial and industrial		24	$	1,885		31	$	3,683
Commercial real estate		6		5,126		8		10,179
Residential mortgages		20		4,444		19		4,314
Home equity		5		1,204		5		1,216
Consumer		7		273		7		281
Total		62	$	12,932		70	$	19,673

The following presents, disaggregated by class, information regarding TDRs executed during the three and six months ended June 30, 2015 and 2014 (dollars in thousands):

	Three Months Ended June 30,
	2015						2014
New TDRs	Number of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance		Number of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Commercial and industrial		1	$	323	$	323		7	$	1,500	$	1,500
Commercial real estate		-		-		-		2		5,161		5,161
Residential mortgages		-		-		-		3		273		273
Home equity		-		-		-		2		109		109
Consumer		-		-		-		3		99		99
Total		1	$	323	$	323		17	$	7,142	$	7,142

	Six Months Ended June 30,
	2015						2014
New TDRs	Number of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance		Number of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Commercial and industrial		2	$	335	$	335		10	$	1,877	$	1,877
Commercial real estate		-		-		-		2		5,161		5,161
Residential mortgages		2		194		199		3		273		273
Home equity		-		-		-		2		109		109
Consumer		-		-		-		3		99		99
Total		4	$	529	$	534		20	$	7,519	$	7,519

Presented below and disaggregated by class is information regarding loans modified as TDRs that had payment defaults of 90 days or more within twelve months of restructuring during the three and six months ended June 30, 2015 and 2014 (dollars in thousands).

	Three Months Ended June 30,								Six Months Ended June 30,
	2015				2014				2015				2014
Defaulted TDRs	Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance		Number of Loans		Outstanding Recorded Balance
Commercial real estate		-	$	-		-	$	-		-	$	-		2	$	1,566
Consumer		1		46		-		-		1		46		-		-
Total		1	$	46		-	$	-		1	$	46		2	$	1,566

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

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

	June 30, 2015		December 31, 2014
Non-accrual loans	$	5,529	$	12,981
Non-accrual loans held for sale		-		-
Loans 90 days past due and still accruing		-		-
OREO		-		-
Total non-performing assets	$	5,529	$	12,981
TDRs accruing interest	$	10,091	$	9,380
TDRs non-accruing	$	2,841	$	10,293

At June 30, 2015 and December 31, 2014, non-accrual loans disaggregated by class were as follows (dollars in thousands):

	June 30, 2015										December 31, 2014
	Non-accrual loans		% of Total			Total Loans		% of Total Loans			Non-accrual loans		% of Total			Total Loans		% of Total Loans
Commercial and industrial	$	1,785		32.3	%	$	196,881		0.1	%	$	4,060		31.3	%	$	177,813		0.3	%
Commercial real estate		1,759		31.8			598,866		0.1			6,556		50.5			560,524		0.5
Multifamily		-		-			361,309		-			-		-			309,666		-
Mixed use commercial		-		-			50,372		-			-		-			34,806		-
Real estate construction		-		-			31,628		-			-		-			26,206		-
Residential mortgages		1,465		26.5			182,828		0.1			2,020		15.6			187,828		0.1
Home equity		355		6.4			48,298		0.1			303		2.3			50,982		0.1
Consumer		165		3.0			6,444		-			42		0.3			7,602		-
Total	$	5,529		100.0	%	$	1,476,626		0.4	%	$	12,981		100.0	%	$	1,355,427		1.0	%

Additional interest income of approximately $83 thousand and $145 thousand would have been recorded during the three months ended June 30, 2015 and 2014, respectively, and $171 thousand and $639 thousand during the six months ended June 30, 2015 and 2014, respectively, if non-accrual loans had performed in accordance with their original terms.

At June 30, 2015 and December 31, 2014, past due loans disaggregated by class were as follows (in thousands).

	Past Due
June 30, 2015	30 - 59 days			60 - 89 days			90 days and over			Total			Current			Total
Commercial and industrial	$	-		$	2,578		$	1,785		$	4,363		$	192,518		$	196,881
Commercial real estate		-			-			1,759			1,759			597,107			598,866
Multifamily		-			-			-			-			361,309			361,309
Mixed use commercial		-			-			-			-			50,372			50,372
Real estate construction		-			-			-			-			31,628			31,628
Residential mortgages		1,196			348			1,465			3,009			179,819			182,828
Home equity		496			-			355			851			47,447			48,298
Consumer		-			-			165			165			6,279			6,444
Total	$	1,692		$	2,926		$	5,529		$	10,147		$	1,466,479		$	1,476,626
% of Total Loans		0.1	%		0.2	%		0.4	%		0.7	%		99.3	%		100.0	%

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

The Bank utilizes an eight-grade risk-rating system for commercial and industrial loans, commercial real estate and construction loans. Loans in risk grades 1- 4 are considered pass loans. The Bank’s risk grades are as follows:

Risk Grade 1, Excellent - Loans secured by liquid collateral such as certificates of deposit, reputable bank letters of credit, or other cash equivalents; loans that are guaranteed or otherwise backed by the full faith and credit of the United States government or an agency thereof, such as the Small Business Administration; or loans to any publicly held company with a current long-term debt rating of A or better.

Risk Grade 2, Good -  Loans to businesses that have strong financial statements containing an unqualified opinion from a CPA firm and at least three consecutive years of profits; loans supported by un-audited financial statements containing strong balance sheets, five consecutive years of profits, a five-year satisfactory relationship with the Bank, and key balance sheet and income statement trends that are either stable or positive; loans secured by publicly traded marketable securities where there is no impediment to liquidation; loans to individuals backed by liquid personal assets, established credit history, and unquestionable character; or loans to publicly held companies with current long-term debt ratings of Baa or better.

Risk Grade 3, Satisfactory - Loans supported by financial statements (audited or un-audited) that indicate average or slightly below average risk and having some deficiency or vulnerability to changing economic conditions; loans with some weakness but offsetting features of other support are readily available; loans that are meeting the terms of repayment, but which may be susceptible to deterioration if adverse factors are encountered. Loans may be graded Satisfactory when there is no recent information on which to base a current risk evaluation and the following conditions apply:

· At inception, the loan was properly underwritten, did not possess an unwarranted level of credit risk, and the loan met the above criteria for a risk grade of Excellent, Good, or Satisfactory.

· At inception, the loan was secured with collateral possessing a loan value adequate to protect the Bank from loss.

· The loan has exhibited two or more years of satisfactory repayment with a reasonable reduction of the principal balance.

· During the period that the loan has been outstanding, there has been no evidence of any credit weakness. Some examples of weakness include slow payment, lack of cooperation by the borrower, breach of loan covenants or the borrower is in an industry known to be experiencing problems. If any of these credit weaknesses is observed, a lower risk grade may be warranted.

Risk Grade 4, Satisfactory/Monitored - Loans in this category are considered to be of acceptable credit quality, but contain greater credit risk than satisfactory loans due to weak balance sheets, marginal earnings or cash flow, or other uncertainties. These loans warrant a higher than average level of monitoring to ensure that weaknesses do not advance. The level of risk in a Satisfactory/Monitored loan is within acceptable underwriting guidelines so long as the loan is given the proper level of management supervision.

Risk Grade 5, Special Mention - Loans in this category possess potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position at some future date. Special Mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. The key distinctions of a Special Mention classification are that (1) it is indicative of an unwarranted level of risk and (2) weaknesses are considered potential not defined impairments to the primary source of repayment.

Risk Grade 6, Substandard - One or more of the following characteristics may be exhibited in loans classified Substandard:

· Loans which possess a defined credit weakness. The likelihood that a loan will be paid from the primary source of repayment is uncertain. Financial deterioration is under way and very close attention is warranted to ensure that the loan is collected without loss.

· Loans are inadequately protected by the current net worth and paying capacity of the obligor.

· The primary source of repayment is gone, and the Bank is forced to rely on a secondary source of repayment, such as collateral liquidation or guarantees.

· Loans have a distinct possibility that the Bank will sustain some loss if deficiencies are not corrected.

· Unusual courses of action are needed to maintain a high probability of repayment.

· The borrower is not generating enough cash flow to repay loan principal; however, it continues to make interest payments.

· The lender is forced into a subordinated or unsecured position due to flaws in documentation.

· Loans have been restructured so that payment schedules, terms, and collateral represent concessions to the borrower when compared to the normal loan terms.

· The lender is seriously contemplating foreclosure or legal action due to the apparent deterioration in the loan.

· There is a significant deterioration in market conditions to which the borrower is highly vulnerable.

Risk Grade 7, Doubtful - One or more of the following characteristics may be present in loans classified Doubtful:

· Loans have all of the weaknesses of those classified as Substandard. However, based on existing conditions, these weaknesses make full collection of principal highly improbable.

· The primary source of repayment is gone, and there is considerable doubt as to the quality of the secondary source of repayment.

· The possibility of loss is high but because of certain important pending factors which may strengthen the loan, loss classification is deferred until the exact status of repayment is known.

Risk Grade 8, Loss - Loans are considered uncollectible and of such little value that continuing to carry them as assets is not feasible. Loans will be classified Loss when it is neither practical nor desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.

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

The following presents the Company’s loan portfolio credit risk profile by internally assigned grade disaggregated by class of loan at June 30, 2015 and December 31, 2014 (in thousands).

	June 30, 2015												December 31, 2014
	Grade												Grade
	Pass			Special mention			Substandard			Total			Pass			Special mention			Substandard			Total
Commercial and industrial	$	182,614		$	3,898		$	10,369		$	196,881		$	167,922		$	1,225		$	8,666		$	177,813
Commercial real estate		582,851			11,568			4,447			598,866			536,536			9,182			14,806			560,524
Multifamily		361,309			-			-			361,309			309,666			-			-			309,666
Mixed use commercial		50,356			-			16			50,372			34,806			-			-			34,806
Real estate construction		31,628			-			-			31,628			26,206			-			-			26,206
Residential mortgages		180,564			-			2,264			182,828			183,263			-			4,565			187,828
Home equity		47,943			-			355			48,298			49,569			-			1,413			50,982
Consumer		6,279			-			165			6,444			7,279			-			323			7,602
Total	$	1,443,544		$	15,466		$	17,616		$	1,476,626		$	1,315,247		$	10,407		$	29,773		$	1,355,427
% of Total		97.8	%		1.0	%		1.2	%		100.0	%		97.0	%		0.8	%		2.2	%		100.0	%

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EMPLOYEE BENEFITS

6 Months Ended

Jun. 30, 2015

EMPLOYEE BENEFITS [Abstract]

EMPLOYEE BENEFITS

5. EMPLOYEE BENEFITS

Retirement Plan- The Company’s retirement plan is noncontributory and covers substantially all eligible employees. The plan conforms to the provisions of the Employee Retirement Income Security Act of 1974, as amended, and the Pension Protection Act of 2006, which requires certain funding rules for defined benefit plans. The Company’s policy is to accrue for all pension costs and to fund the maximum amount allowable for tax purposes. Actuarial gains and losses that arise from changes in assumptions concerning future events are amortized over a period that reflects the long-term nature of pension expense used in estimating pension costs. On December 31, 2012, the Company’s retirement plan was frozen such that no additional pension benefits would accumulate. For the three months ended June 30, 2015 and 2014, the Company’s net periodic pension credit was $111 thousand and $91 thousand, respectively, and $222 thousand and $182 thousand, respectively, for the six months ended June 30, 2015 and 2014.

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

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INCOME TAXES

6 Months Ended

Jun. 30, 2015

INCOME TAXES [Abstract]

INCOME TAXES

7. INCOME TAXES

The deferred tax assets and liabilities are netted and presented in a single amount which is included in deferred taxes in the accompanying consolidated statements of condition. The realization of deferred tax assets (“DTAs”) (net of a recorded valuation allowance) is largely dependent upon future taxable income, future reversals of existing taxable temporary differences and the ability to carry back losses to available tax years. In assessing the need for a valuation allowance, the Company considers positive and negative evidence, including taxable income in carryback years, scheduled reversals of deferred tax liabilities, expected future taxable income and tax planning strategies. At June 30, 2015 the Company had no remaining Federal net operating loss carryforwards and had net operating loss carryforwards of approximately $19.0 million for New York State (“NYS”) income tax purposes, which may be applied against future taxable income. The Company has a full valuation allowance of $848 thousand, tax effected, on the NYS net operating loss carryforward due to the Company’s significant tax-exempt investment income. The valuation allowance may be reversed to income in future periods to the extent that the related DTAs are realized or when the Company returns to consistent, taxable earnings in NYS. The NYS unused net operating loss carryforwards are expected to expire in varying amounts through the year 2032.

The Company recorded income tax expense of $2.8 million in the first half of 2015 resulting in an effective tax rate of 23.6% versus an income tax expense of $2.2 million and an effective tax rate of 22.4% in the comparable period a year ago. The increase primarily related to the change in the federal tax rate from 34% to 35% based on the federal tax rates expected to be in effect during the periods in which the temporary differences reverse. Partially offsetting the federal rate increase was the net New York City deferred tax benefit resulting from the opening of the Long Island City office.

The Company has no unrecognized tax benefits at June 30, 2015 as compared to $34 thousand at December 31, 2014. There is no accrued interest relating to uncertain tax positions. The Company files income tax returns in the U.S. federal jurisdiction and in New York State. Federal returns are subject to audits by tax authorities and the Company is currently under an audit for the tax year 2013. It is not anticipated that the unrecognized tax benefits will significantly change over the next 12 months.

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INVESTMENT SECURITIES, Securities Sales And Continuous Unrealized Loss Position Of Securities Held (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Proceeds from sales of securities available for sale and the associated realized securities gains and losses [Abstract]
Proceeds	$ 6,472	$ 20,604	$ 7,003	$ 20,604
Gross realized gains	175	229	201	229
Gross realized losses	15	252	15	252
Net realized gains (losses)	160	$ (23)	186	$ (23)
Length of time individual securities for held-to-maturity and available-for-sale held in a continuous unrealized loss position [Abstract]
Less than 12 months Fair Value	74,335		74,335		$ 0
Less than 12 months Unrealized Losses	(962)		(962)		0
12 months or longer Fair Value	54,471		54,471		134,486
12 months or longer Unrealized Losses	(1,431)		(1,431)		(2,710)
Total Fair Value	128,806		128,806		134,486
Total Unrealized Losses	(2,393)		(2,393)		(2,710)
U.S. Government Agency Securities [Member]
Length of time individual securities for held-to-maturity and available-for-sale held in a continuous unrealized loss position [Abstract]
Less than 12 months Fair Value	23,487		23,487		0
Less than 12 months Unrealized Losses	(341)		(341)		0
12 months or longer Fair Value	19,593		19,593		41,577
12 months or longer Unrealized Losses	(406)		(406)		(897)
Total Fair Value	43,080		43,080		41,577
Total Unrealized Losses	(747)		(747)		(897)
Collateralized Mortgage Obligations [Member]
Length of time individual securities for held-to-maturity and available-for-sale held in a continuous unrealized loss position [Abstract]
Less than 12 months Fair Value	0		0		0
Less than 12 months Unrealized Losses	0		0		0
12 months or longer Fair Value	8,274		8,274		8,417
12 months or longer Unrealized Losses	(430)		(430)		(531)
Total Fair Value	8,274		8,274		8,417
Total Unrealized Losses	(430)		(430)		(531)
Mortgage-Backed Securities [Member]
Length of time individual securities for held-to-maturity and available-for-sale held in a continuous unrealized loss position [Abstract]
Less than 12 months Fair Value	50,848		50,848		0
Less than 12 months Unrealized Losses	(621)		(621)		0
12 months or longer Fair Value	26,604		26,604		81,510
12 months or longer Unrealized Losses	(595)		(595)		(1,264)
Total Fair Value	77,452		77,452		81,510
Total Unrealized Losses	$ (1,216)		$ (1,216)		(1,264)
Corporate Bonds [Member]
Length of time individual securities for held-to-maturity and available-for-sale held in a continuous unrealized loss position [Abstract]
Less than 12 months Fair Value					0
Less than 12 months Unrealized Losses					0
12 months or longer Fair Value					2,982
12 months or longer Unrealized Losses					(18)
Total Fair Value					2,982
Total Unrealized Losses					$ (18)

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FAIR VALUE, Non-recurring Basis, Quantitative Information (Details) - Level 3 [Member] - USD ($) $ in Thousands		Jun. 30, 2015	Dec. 31, 2014
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Total		$ 3,104	$ 3,293
Third Party Appraisal [Member] | Residential Mortgages [Member]
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Total		$ 2,905	$ 3,097
Discount to appraised value (in hundredths)	[1]	25.00%	25.00%
Third Party Appraisal [Member] | Residential Mortgages [Member] | Minimum [Member]
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Estimated selling costs (in hundredths)		9.00%	9.00%
Third Party Appraisal [Member] | Residential Mortgages [Member] | Maximum [Member]
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Estimated selling costs (in hundredths)		15.00%	15.00%
Third Party Appraisal [Member] | Home Equity [Member]
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Total		$ 104	$ 98
Discount to appraised value (in hundredths)	[1]	25.00%	25.00%
Third Party Appraisal [Member] | Home Equity [Member] | Minimum [Member]
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Estimated selling costs (in hundredths)		9.00%	9.00%
Third Party Appraisal [Member] | Home Equity [Member] | Maximum [Member]
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Estimated selling costs (in hundredths)		15.00%	15.00%
Third Party Appraisal [Member] | Consumer [Member]
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Total		$ 95	$ 98
Discount to appraised value (in hundredths)	[2]	25.00%	25.00%
Third Party Appraisal [Member] | Consumer [Member] | Minimum [Member]
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Estimated selling costs (in hundredths)		10.00%	10.00%
Third Party Appraisal [Member] | Consumer [Member] | Maximum [Member]
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Estimated selling costs (in hundredths)		12.00%	12.00%

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

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

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FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2015

FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Earnings-Per-Share

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

The reconciliation of basic and diluted weighted average number of common shares outstanding for the three and six months ended June 30, 2015 and 2014 follows.

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Weighted average common shares outstanding		11,630,056		11,575,322		11,616,565		11,574,174
Weighted average unvested restricted shares		118,012		-		104,831		-
Weighted average shares for basic earnings per share		11,748,068		11,575,322		11,721,396		11,574,174
Additional diluted shares:
Stock options		74,494		72,599		71,911		65,124
Weighted average shares for diluted earnings per share		11,822,562		11,647,921		11,793,307		11,639,298

Loans and Loan Interest Income Recognition

Loans and Loan Interest Income Recognition – Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned discounts, deferred loan fees and costs. Unearned discounts on installment loans are credited to income using methods that result in a level yield. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income over the respective term of the loan without anticipating prepayments.

Interest income is accrued on the unpaid loan principal balance. Recognition of interest income is discontinued when reasonable doubt exists as to whether principal or interest due can be collected. Loans of all classes will generally no longer accrue interest when over 90 days past due unless the loan is well-secured and in process of collection. When a loan is placed on non-accrual status, all interest previously accrued, but not collected, is reversed against current-year interest income. Interest received on such loans is applied against principal or interest, according to management’s judgment as to the collectability of the principal, until qualifying for return to accrual status. Loans may start accruing interest again when they become current as to principal and interest for at least six months, and when, after a well-documented analysis by management, it has been determined that the loans can be collected in full.  For all classes of loans, an impaired loan is defined as a loan for which it is probable that the lender will not collect all amounts due under the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties are considered troubled debt restructurings (“TDRs”) and are classified as impaired. Generally, TDRs are initially classified as non-accrual until sufficient time has passed to assess whether the restructured loan will continue to perform. For impaired, accruing loans, interest income is recognized on an accrual basis with cash offsetting the recorded accruals upon receipt.

Allowance for Loan Losses

Allowance for Loan Losses - The allowance for loan losses is a valuation allowance for probable incurred losses, increased by the provision for loan losses and recoveries, and decreased by loan charge-offs. For all classes of loans, when a loan, in full or in part, is deemed uncollectible, it is charged against the allowance for loan losses. This happens when the loan is past due and the borrower has not shown the ability or intent to make the loan current, or the borrower does not have sufficient assets to pay the debt, or the value of the collateral is less than the balance of the loan and is not considered likely to improve soon. The allowance for loan losses is determined by a quarterly analysis of the loan portfolio. Such analysis includes changes in the size and composition of the portfolio, the Company’s own historical loan losses, industry-wide losses, current and anticipated economic trends, and details about individual loans. It also includes estimates of the actual value of collateral, other possible sources of repayment and estimates that are susceptible to significant changes due to changes in appraisal values of collateral, national and regional economic conditions and other relevant factors. All non-accrual loans over $250 thousand in the commercial and industrial, commercial real estate and real estate construction loan classes and all TDRs are evaluated individually for impairment. All other loans are generally evaluated as homogeneous pools with similar risk characteristics. In assessing the adequacy of the allowance for loan losses, management reviews the loan portfolio by separate classes that have similar risk and collateral characteristics. These classes are commercial and industrial, commercial real estate, multifamily, mixed use commercial, real estate construction, residential mortgages, home equity and consumer loans.

The allowance for loan losses consists of specific and general components, as well as an unallocated component. The specific component relates to loans that are individually classified as impaired. Specific reserves are established based on an analysis of the most probable sources of repayment or liquidation of collateral. Impaired loans that are collateral dependent are reviewed based on the fair market value of collateral and the estimated time required to recover the Company’s investment in the loans, as well as the cost of doing so, and the estimate of the recovery. Non-collateral dependent impaired loans are reviewed based on the present value of estimated future cash flows, including balloon payments, if any, using the loan’s effective interest rate. While every impaired loan is evaluated individually, not every loan requires a specific reserve. Specific reserves fluctuate based on changes in the underlying loans, anticipated sources of repayment, and charge-offs. The general component covers non-impaired loans and is based on historical loss experience for each loan class from a rolling twelve quarter period and modifying those percentages, if necessary, after adjusting for current qualitative and environmental factors that reflect changes in the estimated collectability of the loan class not captured by historical loss data. These factors augment actual loss experience and help estimate the probability of loss within the loan portfolio based on emerging or inherent risk trends. These qualitative factors are applied as an adjustment to historical loss rates and require judgments that cannot be subjected to exact mathematical calculation. These adjustments reflect management’s overall estimate of the extent to which current losses on a pool of loans will differ from historical loss experience. These adjustments are subjective estimates and management reviews them on a quarterly basis. TDRs are also considered impaired with impairment generally measured at the present value of estimated future cash flows using the loan’s effective interest rate at inception or using the fair value of collateral, less estimated costs to sell, if repayment is expected solely from the collateral. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

Loans Held-For-Sale

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

Bank Owned Life Insurance

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

Derivatives

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

Recent Accounting Guidance

Recent Accounting Guidance – In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), “Revenue from Contracts with Customers,” which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of the ASU is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. The ASU defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. After the FASB’s vote on July 9, 2015 to defer the ASU’s effective date for one year, the ASU is effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting the ASU recognized at the date of adoption (which includes additional footnote disclosures). Earlier application would be permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company has not yet determined the method by which it will adopt ASU 2014-09 in 2018 and does not believe that the adoption will have a material effect on the Company’s consolidated financial statements. On May 12, 2015, the FASB issued an exposure draft proposing amendments that would not change the core principles of the standard, but would clarify the accounting for licenses of intellectual property, as well as the identification of performance obligations in a contract.

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

Reclassifications

Reclassifications — Certain reclassifications have been made to prior period information in order to conform to the current period’s presentation. Such reclassifications had no impact on the Company’s consolidated results of operations or financial condition.

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STOCK-BASED COMPENSATION (Tables)

6 Months Ended

Jun. 30, 2015

STOCK-BASED COMPENSATION [Abstract]

Summary of stock option activity

A summary of stock option activity follows:

	Number of Shares			Weighted-Average Exercise Price Per Share
Outstanding, January 1, 2015		251,100		$	16.33
Granted		-			-
Exercised		(32,667	)	$	14.12
Forfeited or expired		(16,666	)	$	19.67
Outstanding, June 30, 2015		201,767		$	16.42

Summary of options outstanding and exercisable

The following summarizes shares subject to purchase from stock options outstanding and exercisable as of June 30, 2015:

	Outstanding					Exercisable
Range of Exercise Prices	Shares		Weighted-Average  Remaining  Contractual Life	Weighted-Average Exercise Price		Shares		Weighted-Average  Remaining  Contractual Life	Weighted-Average Exercise Price
$10.00 - $14.00		96,667	6.6 years	$	11.68		63,334	6.7 years	$	12.14
$14.01 - $20.00		83,100	8.1 years	$	17.80		32,438	8.0 years	$	17.36
$20.01 - $30.00		5,000	3.6 years	$	28.30		5,000	3.6 years	$	28.30
$30.01 - $40.00		17,000	1.5 years	$	33.12		17,000	1.5 years	$	33.12
		201,767	6.7 years	$	16.42		117,772	6.2 years	$	17.29

Summary of restricted stock activity

A summary of restricted stock activity follows:

	Number of Shares			Weighted-Average Grant-Date Fair Value
Nonvested, January 1, 2015		72,350		$	22.51
Granted		71,612		$	23.18
Vested		(22,213	)	$	22.51
Forfeited or expired		(6,041	)	$	22.52
Nonvested, June 30, 2015		115,708		$	22.92

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FAIR VALUE, Balance Sheets Grouping (Details) - USD ($) $ in Thousands		6 Months Ended
		Jun. 30, 2015	Dec. 31, 2014
Financial Assets [Abstract]
Interest-bearing time deposits in other banks		$ 0	$ 10,000
Investment securities held to maturity		65,851	64,796
Investment securities available for sale		273,837	298,670
Financial Liabilities [Abstract]
Borrowings		$ 65,000	130,000
Percentage of derivative in net sale proceeds (in hundredths)		10.00%
Carrying Amount [Member]
Financial Assets [Abstract]
Federal Reserve and Federal Home Loan Bank stock and other investments		$ 6,177	8,600
Carrying Amount [Member] | Level 1 [Member]
Financial Assets [Abstract]
Cash and due from banks		96,994	54,516
Carrying Amount [Member] | Level 2 [Member]
Financial Assets [Abstract]
Federal funds sold		0	1,000
Interest-bearing time deposits in other banks		0	10,000
Investment securities held to maturity		63,618	62,270
Investment securities available for sale		273,837	298,670
Loans held for sale		3,132	26,495
Accrued interest and loan fees receivable		5,774	5,676
Financial Liabilities [Abstract]
Non maturity deposits		1,475,894	1,337,301
Time deposits		242,500	218,759
Borrowings		65,000	130,000
Accrued interest payable		186	136
Carrying Amount [Member] | Level 3 [Member]
Financial Liabilities [Abstract]
Derivatives		752	752
Carrying Amount [Member] | Level 2/3 [Member]
Financial Assets [Abstract]
Loans, net of allowance	[1]	1,456,575	1,336,227
Fair Value [Member] | Level 1 [Member]
Financial Assets [Abstract]
Cash and due from banks		96,994	54,516
Fair Value [Member] | Level 2 [Member]
Financial Assets [Abstract]
Federal funds sold		0	1,000
Interest-bearing time deposits in other banks		0	10,017
Investment securities held to maturity		65,851	64,796
Investment securities available for sale		273,837	298,670
Loans held for sale		3,132	26,495
Accrued interest and loan fees receivable		5,774	5,676
Financial Liabilities [Abstract]
Non maturity deposits		1,475,894	1,337,301
Time deposits		242,927	219,089
Borrowings		64,845	130,004
Accrued interest payable		186	136
Fair Value [Member] | Level 3 [Member]
Financial Liabilities [Abstract]
Derivatives		752	752
Fair Value [Member] | Level 2/3 [Member]
Financial Assets [Abstract]
Loans, net of allowance	[1]	$ 1,447,839	$ 1,329,041

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

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LOANS, Summary of Non-Performing Assets (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Summary of non-performing assets [Abstract]
Non-accrual loans	$ 5,529	$ 12,981
Non-accrual loans held for sale	0	0
Loans 90 days past due and still accruing	0	0
OREO	0	0
Total non-performing assets	5,529	12,981
TDRs accruing interest	10,091	9,380
TDRs non-accruing	$ 2,841	$ 10,293

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) [Abstract]
Net income	$ 5,118	$ 3,771	$ 9,127	$ 7,491
Other comprehensive (loss) income, net of tax and reclassification adjustments:
Change in unrealized (loss) gain on securities available for sale arising during the period, net of tax of ($1,049), $1,586, ($346) and $4,267, respectively	(1,604)	2,371	(529)	7,071
Change in unrealized gain (loss) on securities transferred from available for sale to held to maturity, net of tax of $26, ($307), $53 and ($1,227), respectively	40	(278)	81	(1,890)
Total other comprehensive (loss) income, net of tax	(1,564)	2,093	(448)	5,181
Total comprehensive income	$ 3,554	$ 5,864	$ 8,679	$ 12,672

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FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2015

FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES [Abstract]

FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

1. FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Suffolk Bancorp (the “Company”) was incorporated in 1985 as a bank holding company. The Company currently owns all of the outstanding capital stock of Suffolk County National Bank (the “Bank”). The Bank was organized under the national banking laws of the United States in 1890. The Bank formed Suffolk Greenway, Inc. (the “REIT”), a real estate investment trust, and owns 100% of an insurance agency and two corporations used to acquire foreclosed real estate. The insurance agency and the two corporations used to acquire foreclosed real estate are immaterial to the Company’s operations. The unaudited interim condensed consolidated financial statements include the accounts of the Company and the Bank and its subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Unless the context otherwise requires, references herein to the Company include the Company and the Bank and subsidiaries on a consolidated basis.

In the opinion of the Company’s management, the preceding unaudited interim condensed consolidated financial statements contain all adjustments, consisting of normal accruals, necessary for a fair presentation of its condensed consolidated statement of condition as of June 30, 2015, its condensed consolidated statements of income for the three and six months ended June 30, 2015 and 2014, its condensed consolidated statements of comprehensive income for the three and six months ended June 30, 2015 and 2014, its condensed consolidated statements of changes in stockholders’ equity for the six months ended June 30, 2015 and 2014 and its condensed consolidated statements of cash flows for the six months ended June 30, 2015 and 2014.

The preceding unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X, as well as in accordance with predominant practices within the banking industry. They do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. The results of operations for the three and six months ended June 30, 2015 are not necessarily indicative of the results of operations to be expected for the remainder of the year. For further information, please refer to the audited consolidated financial statements and footnotes thereto included in the Company’s 2014 Annual Report on Form 10-K.

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

The reconciliation of basic and diluted weighted average number of common shares outstanding for the three and six months ended June 30, 2015 and 2014 follows.

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Weighted average common shares outstanding		11,630,056		11,575,322		11,616,565		11,574,174
Weighted average unvested restricted shares		118,012		-		104,831		-
Weighted average shares for basic earnings per share		11,748,068		11,575,322		11,721,396		11,574,174
Additional diluted shares:
Stock options		74,494		72,599		71,911		65,124
Weighted average shares for diluted earnings per share		11,822,562		11,647,921		11,793,307		11,639,298

Loans and Loan Interest Income Recognition – Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned discounts, deferred loan fees and costs. Unearned discounts on installment loans are credited to income using methods that result in a level yield. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income over the respective term of the loan without anticipating prepayments.

Interest income is accrued on the unpaid loan principal balance. Recognition of interest income is discontinued when reasonable doubt exists as to whether principal or interest due can be collected. Loans of all classes will generally no longer accrue interest when over 90 days past due unless the loan is well-secured and in process of collection. When a loan is placed on non-accrual status, all interest previously accrued, but not collected, is reversed against current-year interest income. Interest received on such loans is applied against principal or interest, according to management’s judgment as to the collectability of the principal, until qualifying for return to accrual status. Loans may start accruing interest again when they become current as to principal and interest for at least six months, and when, after a well-documented analysis by management, it has been determined that the loans can be collected in full.  For all classes of loans, an impaired loan is defined as a loan for which it is probable that the lender will not collect all amounts due under the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties are considered troubled debt restructurings (“TDRs”) and are classified as impaired. Generally, TDRs are initially classified as non-accrual until sufficient time has passed to assess whether the restructured loan will continue to perform. For impaired, accruing loans, interest income is recognized on an accrual basis with cash offsetting the recorded accruals upon receipt.

Allowance for Loan Losses - The allowance for loan losses is a valuation allowance for probable incurred losses, increased by the provision for loan losses and recoveries, and decreased by loan charge-offs. For all classes of loans, when a loan, in full or in part, is deemed uncollectible, it is charged against the allowance for loan losses. This happens when the loan is past due and the borrower has not shown the ability or intent to make the loan current, or the borrower does not have sufficient assets to pay the debt, or the value of the collateral is less than the balance of the loan and is not considered likely to improve soon. The allowance for loan losses is determined by a quarterly analysis of the loan portfolio. Such analysis includes changes in the size and composition of the portfolio, the Company’s own historical loan losses, industry-wide losses, current and anticipated economic trends, and details about individual loans. It also includes estimates of the actual value of collateral, other possible sources of repayment and estimates that are susceptible to significant changes due to changes in appraisal values of collateral, national and regional economic conditions and other relevant factors. All non-accrual loans over $250 thousand in the commercial and industrial, commercial real estate and real estate construction loan classes and all TDRs are evaluated individually for impairment. All other loans are generally evaluated as homogeneous pools with similar risk characteristics. In assessing the adequacy of the allowance for loan losses, management reviews the loan portfolio by separate classes that have similar risk and collateral characteristics. These classes are commercial and industrial, commercial real estate, multifamily, mixed use commercial, real estate construction, residential mortgages, home equity and consumer loans.

The allowance for loan losses consists of specific and general components, as well as an unallocated component. The specific component relates to loans that are individually classified as impaired. Specific reserves are established based on an analysis of the most probable sources of repayment or liquidation of collateral. Impaired loans that are collateral dependent are reviewed based on the fair market value of collateral and the estimated time required to recover the Company’s investment in the loans, as well as the cost of doing so, and the estimate of the recovery. Non-collateral dependent impaired loans are reviewed based on the present value of estimated future cash flows, including balloon payments, if any, using the loan’s effective interest rate. While every impaired loan is evaluated individually, not every loan requires a specific reserve. Specific reserves fluctuate based on changes in the underlying loans, anticipated sources of repayment, and charge-offs. The general component covers non-impaired loans and is based on historical loss experience for each loan class from a rolling twelve quarter period and modifying those percentages, if necessary, after adjusting for current qualitative and environmental factors that reflect changes in the estimated collectability of the loan class not captured by historical loss data. These factors augment actual loss experience and help estimate the probability of loss within the loan portfolio based on emerging or inherent risk trends. These qualitative factors are applied as an adjustment to historical loss rates and require judgments that cannot be subjected to exact mathematical calculation. These adjustments reflect management’s overall estimate of the extent to which current losses on a pool of loans will differ from historical loss experience. These adjustments are subjective estimates and management reviews them on a quarterly basis. TDRs are also considered impaired with impairment generally measured at the present value of estimated future cash flows using the loan’s effective interest rate at inception or using the fair value of collateral, less estimated costs to sell, if repayment is expected solely from the collateral. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

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

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

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

Recent Accounting Guidance – In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), “Revenue from Contracts with Customers,” which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of the ASU is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. The ASU defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. After the FASB’s vote on July 9, 2015 to defer the ASU’s effective date for one year, the ASU is effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting the ASU recognized at the date of adoption (which includes additional footnote disclosures). Earlier application would be permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company has not yet determined the method by which it will adopt ASU 2014-09 in 2018 and does not believe that the adoption will have a material effect on the Company’s consolidated financial statements. On May 12, 2015, the FASB issued an exposure draft proposing amendments that would not change the core principles of the standard, but would clarify the accounting for licenses of intellectual property, as well as the identification of performance obligations in a contract.

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

Reclassifications — Certain reclassifications have been made to prior period information in order to conform to the current period’s presentation. Such reclassifications had no impact on the Company’s consolidated results of operations or financial condition.

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REGULATORY MATTERS (Tables)

6 Months Ended

Jun. 30, 2015

REGULATORY MATTERS [Abstract]

The Bank's actual capital amounts and ratios

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

	Actual capital ratios					Minimum for capital adequacy					Minimum to be Well Capitalized under prompt corrective action provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
June 30, 2015
Total capital to risk-weighted assets	$	212,021		13.08	%	$	129,658		8.00	%	$	162,073		10.00	%
Tier 1 capital to risk-weighted assets		191,761		11.83	%		97,244		6.00	%		129,658		8.00	%
Common equity tier 1 capital to risk-weighted assets		191,761		11.83	%		72,933		4.50	%		105,347		6.50	%
Tier 1 capital to adjusted average assets (leverage)		191,761		9.95	%		77,107		4.00	%		96,384		5.00	%
December 31, 2014
Total capital to risk-weighted assets	$	201,476		13.25	%	$	121,608		8.00	%	$	152,010		10.00	%
Tier 1 capital to risk-weighted assets		182,469		12.00	%		60,804		4.00	%		91,206		6.00	%
Tier 1 capital to adjusted average assets (leverage)		182,469		9.96	%		73,312		4.00	%		91,640		5.00	%

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LOANS, Loans and Allowance for Loan Losses Impairment Evaluations (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	$ 1,027		$ 1,005
Ending balance: collectively evaluated for impairment	19,024		18,195
Ending balance	20,051	$ 19,325	19,200	$ 18,478	$ 17,737	$ 17,263
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	15,900		22,415
Ending balance: collectively evaluated for impairment	1,460,726		1,333,012
Total loans	1,476,626		1,355,427
Commercial and Industrial [Member]
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	5		16
Ending balance: collectively evaluated for impairment	2,068		1,544
Ending balance	2,073	1,998	1,560	2,932	2,481	2,615
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	2,848		4,889
Ending balance: collectively evaluated for impairment	194,033		172,924
Total loans	196,881		177,813
Commercial Real Estate [Member]
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	0		0
Ending balance: collectively evaluated for impairment	6,000		6,777
Ending balance	6,000	7,352	6,777	7,899	7,208	6,572
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	5,357		10,214
Ending balance: collectively evaluated for impairment	593,509		550,310
Total loans	598,866		560,524
Multifamily [Member]
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	0		0
Ending balance: collectively evaluated for impairment	4,065		4,018
Ending balance	4,065	4,467	4,018	2,444	2,640	2,159
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	0		0
Ending balance: collectively evaluated for impairment	361,309		309,666
Total loans	361,309		309,666
Mixed Use Commercial [Member]
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	0		0
Ending balance: collectively evaluated for impairment	465		261
Ending balance	465	273	261	212	87	54
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	0		0
Ending balance: collectively evaluated for impairment	50,372		34,806
Total loans	50,372		34,806
Real Estate Construction [Member]
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	0		0
Ending balance: collectively evaluated for impairment	478		383
Ending balance	478	360	383	230	217	88
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	0		0
Ending balance: collectively evaluated for impairment	31,628		26,206
Total loans	31,628		26,206
Residential Mortgages [Member]
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	779		809
Ending balance: collectively evaluated for impairment	1,792		2,218
Ending balance	2,571	2,618	3,027	2,650	2,627	2,463
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	5,639		5,422
Ending balance: collectively evaluated for impairment	177,189		182,406
Total loans	182,828		187,828
Home Equity [Member]
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	158		92
Ending balance: collectively evaluated for impairment	514		617
Ending balance	672	728	709	761	718	745
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	1,664		1,567
Ending balance: collectively evaluated for impairment	46,634		49,415
Total loans	48,298		50,982
Consumer [Member]
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	85		88
Ending balance: collectively evaluated for impairment	65		78
Ending balance	150		166
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	392		323
Ending balance: collectively evaluated for impairment	6,052		7,279
Total loans	6,444		7,602
Unallocated [Member]
Allowance for loan losses [Abstract]
Ending balance: individually evaluated for impairment	0		0
Ending balance: collectively evaluated for impairment	3,577		2,299
Ending balance	3,577	$ 1,374	2,299	$ 1,184	$ 1,573	$ 2,326
Loan balances [Abstract]
Ending balance: individually evaluated for impairment	0		0
Ending balance: collectively evaluated for impairment	0		0
Total loans	$ 0		$ 0

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BORROWINGS

6 Months Ended

Jun. 30, 2015

BORROWINGS [Abstract]

BORROWINGS

11. BORROWINGS

The following summarizes borrowed funds at June 30, 2015 and December 31, 2014 (dollars in thousands):

As of or for the Six Months Ended June 30, 2015	Federal Home Loan Bank Borrowings Short-Term			Federal Home Loan Bank Borrowings Long-Term			Federal Funds Purchased			Total
Daily average outstanding	$	90,050		$	6,547		$	3		$	96,600
Total interest cost		159			57			-			216
Average interest rate paid		0.35	%		1.76	%		0.45	%		0.45	%
Maximum amount outstanding at any month-end	$	155,000		$	15,000		$	-		$	170,000
Ending balance		50,000			15,000			-			65,000
Weighted-average interest rate on balances outstanding		0.34	%		1.76	%		-	%		0.67	%

As of or for the Year Ended December 31, 2014	Federal Home Loan Bank Borrowings Short-Term			Federal Home Loan Bank Borrowings Long-Term			Federal Funds Purchased			Total
Daily average outstanding	$	13,051		$	-		$	8		$	13,059
Total interest cost		48			-			-			48
Average interest rate paid		0.37	%		-	%		0.46	%		0.37	%
Maximum amount outstanding at any month-end	$	130,000		$	-		$	-		$	130,000
Ending balance		130,000			-			-			130,000
Weighted-average interest rate on balances outstanding		0.32	%		-	%		-	%		0.32	%

Assets pledged as collateral to the Federal Home Loan Bank (“FHLB”), consisting of eligible loans and investment securities, at June 30, 2015 and December 31, 2014 resulted in a maximum borrowing potential of $603 million and $505 million, respectively. The Company had $65 million and $130 million in FHLB borrowings at June 30, 2015 and December 31, 2014, respectively.