10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For quarterly period ended September 30, 2013

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

For the transition period from______________to___________________

Commission File Number: 001-34214

     THE BANK OF KENTUCKY FINANCIAL CORPORATION     

(Exact name of registrant as specified in its charter)

Kentucky	61-1256535
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

   111 Lookout Farm Drive, Crestview Hills, Kentucky 41017   

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number: (859) 371-2340

Indicate by checkmark whether the registrant (1) 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   x   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   x   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 definition of “accelerated filer,” “large accelerated filer,” and “smaller reporting company,” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer ¨	Accelerated filer x
Non-accelerated filer ¨	Smaller reporting company ¨

(do not check if a 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   x

As of October 29, 2013, 7,529,823 shares of the registrant's Common Stock, no par value, were issued and outstanding.

The Bank of Kentucky Financial Corporation

INDEX

	PAGE
Part I               FINANCIAL INFORMATION
Item 1 – Financial Statements	3
Item 2 – Management’s Discussion and Analysis of
Financial Condition and Results of Operations	37
Item 3 – Quantitative and Qualitative Disclosures About Market Risk	56
Item 4 – Controls and Procedures	56
Part II            OTHER INFORMATION
Item 1 – Legal Proceedings	57
Item 1A – Risk Factors	57
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3 – Defaults upon Senior Securities	57
Item 4 – Mine Safety Disclosures	57
Item 5 – Other Information	57
Item 6 – Exhibits	57

2

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

THE BANK OF KENTUCKY FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands, except per share data - unaudited)

	September 30, 2013		December 31, 2012
Assets
Cash and cash equivalents	$	102,448	$	151,832
Interest-bearing deposits with banks		250		250
Available-for-sale securities		310,558		314,444
Held-to-maturity securities		78,371		66,843
Loans held for sale		2,435		16,324
Total loans		1,201,193		1,195,409
Less: Allowance for loan losses		16,632		16,568
Net loans		1,184,561		1,178,841
Premises and equipment, net		22,517		22,494
FHLB stock, at cost		5,099		5,099
Goodwill		22,023		22,023
Acquisition intangibles, net		1,995		2,462
Cash surrender value of life insurance		39,507		33,808
Accrued interest receivable and other assets		32,460		29,684
Total assets	$	1,802,224	$	1,844,104
Liabilities & Shareholders’ Equity
Liabilities
Deposits	$	1,529,505	$	1,570,007
Short-term borrowings		32,167		41,408
Notes payable		50,695		48,715
Accrued interest payable and other liabilities		14,606		13,534
Total liabilities		1,626,973		1,673,664
Shareholders’ Equity
Common stock, no par value, 15,000,000 shares authorized, 7,528,618      (2013) and 7,470,236 (2012) shares issued		3,098		3,098
Additional paid-in capital		35,671		35,126
Retained earnings		137,315		128,289
Accumulated other comprehensive income (loss)		(833)		3,927
Total shareholders’ equity		175,251		170,440
Total liabilities and shareholders’ equity	$	1,802,224	$	1,844,104

See accompanying notes.

3

 

THE BANK OF KENTUCKY FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

(Dollars in thousands, except per share data - unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
INTEREST INCOME
Loans, including related fees	$	13,325	$	13,771	$	39,883	$	41,363
Securities and other		1,709		1,662		4,897		5,419
Total interest income		15,034		15,433		44,780		46,782
INTEREST EXPENSE
Deposits		846		1,214		2,824		4,128
Borrowings		266		257		743		801
Total interest expense		1,112		1,471		3,567		4,929
Net interest income		13,922		13,962		41,213		41,853
Provision for loan losses		600		2,200		4,200		5,700
Net interest income after provision for loan losses		13,322		11,762		37,013		36,153
NON-INTEREST INCOME
Service charges and fees		2,829		2,325		7,541		6,767
Mortgage banking income		282		917		1,493		2,092
Net securities gains		-		-		274		203
Company owned life insurance earnings		301		300		873		910
Bankcard transaction revenue		1,010		940		3,011		2,794
Trust fee income		846		710		2,548		2,093
Other		788		669		2,018		1,961
Total non-interest income		6,056		5,861		17,758		16,820
NON-INTEREST EXPENSE
Salaries and benefits		5,969		5,909		17,870		17,084
Occupancy and equipment		1,366		1,316		3,987		3,908
Data processing		533		505		1,620		1,573
Advertising		335		377		1,002		1,146
Other		3,516		3,692		10,674		10,957
Total non-interest expense		11,719		11,799		35,153		34,668
INCOME BEFORE INCOME TAXES		7,659		5,824		19,618		18,305
Less: income taxes		2,244		1,628		5,628		5,170
NET INCOME	$	5,415	$	4,196	$	13,990	$	13,135
Net income per common share:
Earnings per share, basic	$	.72	$	.56	$	1.87	$	1.76
Earnings per share, diluted	$	.72	$	.56	$	1.85	$	1.74

See accompanying notes.

4

 

THE BANK OF KENTUCKY FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

(Dollars in thousands, except per share data - unaudited)

	Three Months				Nine Months
	Ended September 30,				Ended September 30,
	2013		2012		2013		2012
Net income	$	5,415	$	4,196	$	13,990	$	13,135
Other comprehensive income:
Unrealized gains/(losses) on securities
Unrealized holding gain/ (loss) arising during the period		70		1,921		(6,937)		2,766
Reclassification adjustment for losses (gains) included in net income		-		-		(274)		(203)
Tax effect		(25)		(654)		2,451		(872)
Total other comprehensive income (loss)		45		1,267		(4,760)		1,691
Comprehensive income	$	5,460	$	5,463	$	9,230	$	14,826

See accompanying notes

5

THE BANK OF KENTUCKY FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

(Dollars in thousands, except per share data -unaudited)

	Three Months				Nine Months
	Ended September 30,				Ended September 30,
	2013		2012		2013		2012
Beginning balance	$	170,229	$	164,450	$	170,440	$	156,570
Comprehensive income:
Net income		5,415		4,196		13,990		13,135
Change in net unrealized gain(loss), net of tax		45		1,267		(4,760)		1,691
Total comprehensive income		5,460		5,463		9,230		14,826
Cash dividends paid on common stock		(1,281)		(2,389)		(3,828)		(4,624)
Stock Activity (shares for three months ended 2013 and 2012- 30,604 and 1,555 and for the nine months ended 2013 and 2012- 58,382 and 34,401 including tax benefit)		735		37		1,231		741
Stock-based compensation expense		108		60		329		108
Warrants repurchased		-		-		(2,151)		-
Balance as of September 30	$	175,251	$	167,621	$	175,251	$	167,621
Dividends per share	$	0.17	$	0.32	$	0.51	$	0.62

See accompanying notes

6

THE BANK OF KENTUCKY FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

(Dollars in thousands - unaudited)

	2013		2012
Cash Flows from Operating Activities
Net income	$	13,990	$	13,135
Adjustments to reconcile net income to net cash From operating activities		22,715		(1,246)
Net cash from operating activities		36,705		11,889
Cash Flows from Investing Activities
Proceeds from paydowns and maturities of held-to-maturity securities		4,363		2,780
Proceeds from paydowns and maturities of available-for-sale securities		73,070		151,460
Purchases of held-to-maturity securities		(15,940)		(12,172)
Purchases of available-for-sale securities		(84,244)		(138,121)
Purchases of company owned life insurance		(5,000)		-
Net change in loans		(14,223)		(39,438)
Proceeds from the sale of other real estate		4,409		2,488
Proceeds from the sale of securities		5,230		6,944
Property and equipment expenditures		(1,243)		(1,210)
Net cash from investing activities		(33,578)		(27,269)
Cash Flows from Financing Activities
Net change in deposits		(40,502)		(27,575)
Net change in short-term borrowings		(9,241)		(7,158)
Proceeds from exercise of stock options		1,231		741
Cash dividends paid		(3,828)		(4,624)
Repurchases of warrants		(2,151)		-
Proceeds from note payable		2,000		-
Payments on note payable		(20)		(18)
Net cash from financing activities		(52,511)		(38,634)
Net change in cash and cash equivalents		(49,384)		(54,014)
Cash and cash equivalents at beginning of period		151,832		135,964
Cash and cash equivalents at end of period	$	102,448	$	81,950

See accompanying notes.

7

 

THE BANK OF KENTUCKY FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

(unaudited)

Note 1 - Basis of Presentation:

The condensed consolidated financial statements include the accounts of The Bank of Kentucky Financial Corporation (“BKFC” or the “Company”) and its wholly owned subsidiary, The Bank of Kentucky, Inc. (the “Bank”). All significant intercompany accounts and transactions have been eliminated.

Note 2 - General:

These financial statements were prepared in accordance with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X and, therefore, do not include all of the disclosures necessary for a complete presentation of financial position, results of operations and cash flows in conformity with U.S. generally accepted accounting principles. Except for required accounting changes, these financial statements have been prepared on a basis consistent with the annual financial statements and include, in the opinion of management, all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results of operations and financial position at the end of and for the periods presented. These financial statements and notes should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto as set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for loan losses and the fair values of financial instruments, in particular, are subject to change.

Note 3 - Earnings per Share:

Earnings per share are computed based upon the weighted average number of shares of common stock outstanding during the three and nine month periods. Diluted earnings per share show the potential dilutive effect of additional common shares issuable under the Company’s stock compensation plan and warrants. For the three months ended September 30, 2013 and 2012, 44,404 and 187,720 options were not considered, as they were not dilutive, and for the nine months ended September 30, 2013 and 2012, 46,778 and 264,389 options were not considered, as they were not dilutive. On May 29, 2013 the Company repurchased 276,078.12 warrants outstanding from the U.S. Department of the Treasury. These warrants were included in the average dilution calculations until the repurchase date. The following table presents the numbers of shares used to compute basic and diluted earnings per share for the indicated periods:

8

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Weighted average shares outstanding		7,516,770		7,465,926		7,495,763		7,459,988
Dilutive effects of assumed exercises of stock     options and warrants		32,760		88,133		73,500		77,415
Shares used to compute diluted earnings per share		7,549,530		7,554,059		7,569,263		7,537,403

Note 4 – Stock-Based Compensation:

Stock-based compensation in the form of options to buy stock and restricted stock units (“RSUs”) are granted to directors, officers and employees under the Company’s incentive stock plan (the “Plan”), which provides for the issuance of up to 1,000,000 shares.

Stock Options

The specific terms of each option agreement are determined by the Compensation Committee at the date of the grant. For current options outstanding, options granted to directors vest immediately and options granted to employees generally vest evenly over a five-year period.

The Company recorded stock option expense of $12,000 (net of taxes) and $38,000 (net of taxes) in the three and nine months ended September 30, 2013, respectively, and $24,000 (net of taxes) and $76,000 (net of taxes) in the three and nine months ended September 30, 2012, respectively.

Restricted Stock Units (RSUs)

The specific terms of each RSU award are determined by the Compensation Committee at the date of the grant. Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at issue date. The fair value of the stock was determined using the total number of RSUs granted multiplied by the grant date fair market value of a share of company stock. RSU’s fully vest on the first anniversary of the grant date.

A summary of changes in the Company’s non-vested shares for the three and nine months ended September 30, 2013 is as follows.

			Weighted-Average
Three months ended September 30, 2013			Grant-Date
Nonvested Shares	Shares		Fair Value
Non-vested at July 1, 2013		14,476	$	26.24
Granted		-		-
Vested		-		-
Forfeited		453		26.49
Non-vested at September 30, 2013		14,023	$	26.38

9

			Weighted-Average
Nine months ended September 30, 2013			Grant-Date
Nonvested Shares	Shares		Fair Value
Non-vested at January 1, 2013		4,185	$	25.80
Granted		14,476		26.39
Vested		4,185		25.80
Forfeited		453		26.49
Non-vested at September 30, 2013		14,023	$	26.38

The Company recorded RSU expense of $96,000 and $291,000 for the three and nine months ended September 30, 2013 and $36,000 for the three and nine months ended September 30 2012.  As of September 30, 2013, there was $154,000 of total unrecognized compensation cost related to non-vested shares granted under the Plan. The cost is expected to be recognized over a period of ten months.

Note 5 – Cash and Cash Equivalents:

Cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold and investments in money market mutual funds. The Company reports net cash flows for customer loan and deposit transactions, interest-bearing balances with banks and short-term borrowings with maturities of 90 days or less.

Note 6 – Reclassification:

Certain prior period amounts have been reclassified to conform to the current period presentation. Such reclassifications have no effect on previously reported net income or shareholders’ equity.

Note 7 – New Accounting Pronouncements:

In February 2013, the FASB issued ASU 2013-02 with the primary objective of improving the reporting of reclassifications out of accumulated other comprehensive income (AOCI).  For significant reclassifications that are required to be presented in their entirety in net income in the same reporting period by U.S. Generally Accepted Accounting Principles (U.S. GAAP), the ASU requires an entity to report the effect of these reclassifications out of AOCI on the respective line items of net income either on the face of the statement that reports net income or in the financial statement notes. For AOCI items that are not reclassified to net income in their entirety, presentation in the financial statement notes is required. This ASU is effective for public companies for fiscal years and interim periods within those years beginning after December 15, 2012, or the first quarter of 2013 for calendar year-end companies. Adopting this standard did not have a material effect on the Company’s operating results or financial condition.

10

 

Note 8–Securities:

The fair value of available-for-sale securities and the related gains and losses recognized in accumulated other comprehensive income (loss) was as follows (in thousands):

			Gross		Gross
Available-for-Sale	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
September 30, 2013
U.S. government, federal agencies and government      sponsored enterprises	$	121,162	$	223	$	(2,356)	$	119,029
U.S. government residential mortgage-backed		189,663		2,781		(1,910)		190,534
Corporate		995		-		-		995
	$	311,820	$	3,004	$	(4,266)	$	310,558

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
December 31, 2012
U.S. government, federal agencies and government      sponsored enterprises	$	127,416	$	1,130	$	(69)	$	128,477
U.S. government residential mortgage-backed		180,019		4,972		(84)		184,907
Corporate		1,060		-		-		1,060
	$	308,495	$	6,102	$	(153)	$	314,444

The carrying amount, unrecognized gains and losses, and fair value of securities held-to-maturity were as follows (in thousands):

			Gross		Gross
Held-to-Maturity	Amortized		Unrecognized		Unrecognized		Fair
	Cost		Gains		Losses		Value
September 30, 2013
Municipal and other obligations	$	78,371	$	1,096	$	(1,728)	$	77,739
December 31, 2012
Municipal and other obligations	$	66,843	$	1,900	$	(239)	$	68,504

The amortized cost and fair value of debt securities and carrying amount, if different, at September 30, 2013 by contractual maturity were as follows (in thousands), with securities not due at a single maturity date, primarily mortgage-backed securities, shown separately.

	Available-for-Sale				Held-to-Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due in one year or less	$	3,238	$	3,277	$	3,198	$	3,214
Due after one year through five years		41,404		41,316		32,269		32,842
Due after five years through ten years		76,520		74,436		37,324		36,103
Due after ten years		995		995		5,580		5,580
U.S. government agency mortgage-backed		189,663		190,534		-		-
	$	311,820	$	310,558	$	78,371	$	77,739

11

Proceeds on the sale of $5,230,000 of available-for-sale securities resulted in gains of $274,000 for the first nine months of 2013 and no securities were sold in the third quarter. No securities were sold with losses in the first nine months of 2013. $6,944,000 of available-for-sale securities were sold resulting in gains of $203,000 for the first nine months of 2012, with no losses.

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. Investment securities classified as available-for-sale or held-to-maturity are evaluated for OTTI under ASC 320, Accounting for Certain Investments in Debt and Equity Securities.

In determining OTTI, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss. If an entity intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. Otherwise, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors shall be recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings shall become the new amortized cost basis of the investment.

As of September 30, 2013, the Bank’s security portfolio consisted of 250 securities, 84 of which were in an unrealized loss position of $5,994,000. There was no OTTI of securities at September 30, 2013. Unrealized losses have not been recognized into income because the issuers’ bonds are of high credit quality (U.S. government agencies and government sponsored enterprises and “A” rated or better Kentucky municipalities), management does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery. The recent increase in unrealized losses is attributable to the shift in interest rates and not credit related.

12

Mortgage-backed Securities

At September 30, 2013, 100% of the mortgage-backed securities held by the Bank were issued by U.S. government sponsored entities and agencies, primarily Fannie Mae and Freddie Mac, institutions which the government has affirmed its commitment to support. Because a decline in market value would be attributable to changes in interest rates and illiquidity, and not credit quality, and because the Bank does not have the intent to sell these mortgage-backed securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Bank does not consider these securities to be other than temporarily impaired at September 30, 2013.

At September 30, 2013 and December 31, 2012, securities with a carrying value of $371,078 and $368,504 were pledged to secure public deposits and repurchase agreements.

Securities with unrealized losses at September 30, 2013 and December 31, 2012, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (in thousands):

Available for Sale:	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Loss		Value		Loss		Value		Loss
September 30, 2013
U.S. government, federal agencies and      government sponsored enterprises	$	89,115	$	(2,356)	$	-	$	-	$	89,115	$	(2,356)
U.S government residential mortgage-backed		90,533		(1,910)		-		-		90,533		(1,910)
Total temporarily impaired	$	179,648	$	(4,266)	$	-	$	-	$	179,648	$	(4,266)

Held to Maturity:	Less than 12 Months				12 Months or More				Total
	Fair		Unrecognized		Fair		Unrecognized		Fair		Unrecognized
Description of Securities	Value		Loss		Value		Loss		Value		Loss
September 30, 2013
Municipal & other obligations		34,397		(1,620)		5,403		(108)		39,800		(1,728)
Total temporarily impaired	$	34,397	$	(1,620)	$	5,403	$	(108)	$	39,800	$	(1,728)

Available for Sale:	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Loss		Value		Loss		Value		Loss
December 31, 2012
U.S. government, federal agencies and      government sponsored enterprises	$	11,877	$	(69)	$	-	$	-	$	11,877	$	(69)
U.S government residential mortgage-backed		18,142		(84)		-		-		18,142		(84)
Total temporarily impaired	$	30,019	$	(153)	$	-	$	-	$	30,019	$	(153)

Held to Maturity:	Less than 12 Months				12 Months or More				Total
	Fair		Unrecognized		Fair		Unrecognized		Fair		Unrecognized
Description of Securities	Value		Loss		Value		Loss		Value		Loss
December 31, 2012
Municipal & other obligations		15,056		(239)		-		-		15,056		(239)
Total temporarily impaired	$	15,056	$	(239)	$	-	$	-	$	15,056	$	(239)

13

 

Note 9 - Loans

Loan balances were as follows (in thousands):	September 30,		December 31,
	2013		2012
Commercial	$	221,330	$	201,384
Residential real estate		275,938		278,286
Nonresidential real estate		563,132		573,101
Construction		99,494		104,498
Consumer		15,978		16,447
Municipal obligations		26,898		23,128
Gross loans		1,202,770		1,196,844
Less: Deferred loan origination fees and discount		(1,577)		(1,435)
Allowance for loan losses		(16,632)		(16,568)
Net loans	$	1,184,561	$	1,178,841

14

The following tables present the activity in the allowance for loan losses for the three months ending September 30, 2013 and 2012, and the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2013 (in thousands):

					Non
			Residential		Residential						Municipal
September 30, 2013	Commercial		Real estate		Real estate		Construction		Consumer		Obligations		Total
Allowance for loan losses
Beginning balance	$	2,583	$	4,214	$	7,280	$	2,061	$	450	$	62	$	16,650
Provision for loan losses		467		486		(180)		(221)		42		6		600
Loans charged off		(5)		(451)		(380)		-		(189)		-		(1,025)
Recoveries		31		155		10		142		69		-		407
Total ending allowance balance	$	3,076	$	4,404	$	6,730	$	1,982	$	372	$	68	$	16,632
Ending allowance balance attributable to loans
Individually evaluated for impairment	$	1,545	$	803	$	1,224	$	1,001	$	-	$	-	$	4,573
Collectively evaluated for impairment		1,531		3,601		5,506		981		372		68		12,059
Total ending allowance balance	$	3,076	$	4,404	$	6,730	$	1,982	$	372	$	68	$	16,632
Loans
Loans individually evaluated for impairment	$	5,152	$	7,106	$	14,522	$	2,801	$	-	$	-	$	29,581
Loans collectively evaluated for impairment		216,178		268,832		548,610		96,693		15,978		26,898		1,173,189
Total ending loans balance	$	221,330	$	275,938	$	563,132	$	99,494	$	15,978	$	26,898	$	1,202,770

					Non
			Residential		Residential						Municipal
September 30, 2012	Commercial		Real estate		Real estate		Construction		Consumer		Obligations		Total
Allowance for loan losses
Beginning balance	$	2,159	$	3,786	$	6,666	$	5,167	$	392	$	176	$	18,346
Provision for loan losses		(215)		2,095		875		(729)		325		(151)		2,200
Loans charged off		(89)		(1,051)		(436)		(2,292)		(371)		-		(4,239)
Recoveries		18		3		183		2		72		-		278
Total ending allowance balance	$	1,873	$	4,833	$	7,288	$	2,148	$	418	$	25	$	16,585

15

The following tables present the activity in the allowance for loan losses for the nine months ending September 30, 2013 and 2012, and the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2013 and December 31, 2012 (in thousands):

					Non
			Residential		Residential						Municipal
September 30, 2013	Commercial		Real estate		Real estate		Construction		Consumer		Obligations		Total
Allowance for loan losses
Beginning balance	$	2,716	$	4,272	$	6,991	$	1,964	$	584	$	41	$	16,568
Provision for loan losses		874		1,931		1,305		(139)		202		27		4,200
Loans charged off		(582)		(1,998)		(1,639)		(234)		(630)		-		(5,083)
Recoveries		68		199		73		391		216		-		947
Total ending allowance balance	$	3,076	$	4,404	$	6,730	$	1,982	$	372	$	68	$	16,632

					Non
			Residential		Residential						Municipal
September 30, 2012	Commercial		Real estate		Real estate		Construction		Consumer		Obligations		Total
Allowance for loan losses
Beginning balance	$	3,207	$	2,591	$	7,614	$	4,701	$	162	$	13	$	18,288
Provision for loan losses		(892)		3,782		1,095		977		726		12		5,700
Loans charged off		(461)		(1,573)		(1,609)		(3,538)		(696)		-		(7,877)
Recoveries		19		33		188		8		226		-		474
Total ending allowance balance	$	1,873	$	4,833	$	7,288	$	2,148	$	418	$	25	$	16,585

16

					Non
			Residential		Residential						Municipal
December 31, 2012	Commercial		Real estate		Real estate		Construction		Consumer		Obligations		Total
Ending allowance balance attributable to loans
Individually evaluated for impairment	$	1,266	$	970	$	2,540	$	1,369	$	120	$	-	$	6,265
Collectively evaluated for impairment		1,450		3,302		4,451		595		464		41		10,303
	$	2,716	$	4,272	$	6,991	$	1,964	$	584	$	41	$	16,568
Loans
Loans individually evaluated for impairment	$	1,840	$	8,666	$	18,076	$	5,154	$	120	$	-	$	33,856
Loans collectively evaluated for impairment		199,544		269,620		555,025		99,344		16,327		23,128		1,162,988
Total ending loans balance	$	201,384	$	278,286	$	573,101	$	104,498	$	16,447	$	23,128	$	1,196,844

17

The following table presents individually impaired loans by class of loans as of and for the three months ended September 30, 2013 (in thousands):

	Unpaid				Allowance for		Average		Interest
	Principal		Recorded		Loan Losses		Recorded		Income		Interest
	Balance		Investment		Allocated		Investment		Recognized		Received
With no related allowance recorded
Commercial	$	111	$	111	$	-	$	141	$	-	$	-
Residential real estate
Home equity lines of credit		-		-		-		17		-		-
Multifamily properties		1,319		969		-		485		-		-
Other		1,163		1,052		-		1,642		-		-
Nonresidential real estate
Owner occupied properties		1,293		1,165		-		772		-		-
Non owner occupied properties		4,534		4,296		-		4,428		-		-
Construction		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
With an allowance recorded
Commercial		5,041		5,041		1,545		3,784		57		52
Residential real estate
Home equity lines of credit		388		373		155		356		3		3
Multifamily properties		-		-		-		485		0		0
Other		5,188		4,712		648		4,671		20		19
Nonresidential real estate
Owner occupied properties		7,479		6,350		1,014		7,749		2		2
Non owner occupied properties		3,264		2,711		210		2,652		34		34
Construction		3,004		2,801		1,001		2,879		28		28
Consumer		-		-		-		-		0		0
Total	$	32,784	$	29,581	$	4,573	$	30,061	$	144	$	138

18

 

The following table presents individually impaired loans by class of loans as of and for the three months ended September 30, 2012 (in thousands):

	Unpaid				Allowance for		Average		Interest
	Principal		Recorded		Loan Losses		Recorded		Income		Interest
	Balance		Investment		Allocated		Investment		Recognized		Received
With no related allowance recorded
Commercial	$	30	$	30	$	-	$	170	$	-	$	-
Residential real estate
Home equity lines of credit		50		50		-		50		-		-
Multifamily properties		379		48		-		24		-		-
Other		2,869		2,626		-		2,336		-		-
Nonresidential real estate
Owner occupied properties		802		792		-		490		-		-
Non owner occupied properties		6,206		5,701		-		3,797		-		-
Construction		809		509		-		432		-		-
With an allowance recorded
Commercial		1,088		1,088		317		823		4		4
Residential real estate
Home equity lines of credit		1,488		1,488		1,341		813		12		12
Multifamily properties		1,324		1,324		243		1,554		11		11
Other		3,109		2,964		145		3,309		31		24
Nonresidential real estate
Owner occupied properties		8,544		8,543		2,651		8,774		81		81
Non owner occupied properties		4,595		4,074		342		6,449		34		34
Construction		6,387		5,266		1,215		6,494		45		45
Total	$	37,680	$	34,503	$	6,254	$	35,515	$	218	$	211

19

The following table presents individually impaired loans by class of loans as of and for the nine months ended September 30, 2013 (in thousands):

	Unpaid				Allowance for		Average		Interest
	Principal		Recorded		Loan Losses		Recorded		Income		Interest
	Balance		Investment		Allocated		Investment		Recognized		Received
With no related allowance recorded
Commercial	$	111	$	111	$	-	$	138	$	-	$	-
Residential real estate
Home equity lines of credit		-		-		-		20		-		-
Multifamily properties		1,319		969		-		485		-		-
Other		1,163		1,052		-		1,902		-		-
Nonresidential real estate
Owner occupied properties		1,293		1,165		-		2,450		-		-
Non owner occupied properties		4,534		4,296		-		4,359		-		-
Construction		-		-		-		514		-		-
Consumer		-		-		-		-		-		-
With an allowance recorded
Commercial		5,041		5,041		1,545		2,623		91		80
Residential real estate
Home equity lines of credit		388		373		155		475		9		9
Multifamily properties		-		-		-		543		8		8
Other		5,188		4,712		648		5,177		61		58
Nonresidential real estate
Owner occupied properties		7,479		6,350		1,014		6,204		13		10
Non owner occupied properties		3,264		2,711		210		3,734		109		102
Construction		3,004		2,801		1,001		3,421		93		76
Consumer		-		-		-		20		-		-
Total	$	32,784	$	29,581	$	4,573	$	32,065	$	384	$	343

20

The following table presents individually impaired loans by class of loans as of, and for the nine months ended September 30, 2012 (in thousands):

	Average Recorded Investment		Interest Income Recognized		Interest Received
With no related allowance recorded
Commercial	$	263	$	-	$	-
Residential real estate
Home equity lines of credit		50		-		-
Multifamily properties		273		-		-
Other		2,094		-		-
Nonresidential real estate
Owner occupied properties		698		-		-
Non owner occupied properties		2,848		-		-
Construction		256		-		-
With an allowance recorded
Commercial		950		7		5
Residential real estate
Home equity lines of credit		339		12		12
Multifamily properties		815		22		22
Other		3,557		76		64
Nonresidential real estate
Owner occupied properties		9,081		239		237
Non owner occupied properties		7,406		143		106
Construction		8,017		163		155
Total	$	36,647	$	662	$	601

21

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2012 (in thousands):

	Unpaid				Allowance for
	Principal		Recorded		Loan Losses
	Balance		Investment		Allocated
With no related allowance recorded
Commercial	$	28	$	28	$	-
Residential real estate
Home equity lines of credit		50		50		-
Multifamily properties		-		-		-
Other		1,922		1,679		-
Nonresidential real estate
Owner occupied properties		-		-		-
Non owner occupied properties		5,056		4,551		-
Construction		-		-		-
Consumer		-		-		-
With an allowance recorded
Commercial		1,812		1,812		1,266
Residential real estate
Home equity lines of credit		766		566		212
Multifamily properties		1,320		1,320		248
Other		5,196		5,051		510
Nonresidential real estate
Owner occupied properties		9,142		8,190		1,644
Non owner occupied properties		5,876		5,335		896
Construction		6,274		5,154		1,369
Consumer		120		120		120
Total	$	37,562	$	33,856	$	6,265

22

 

The following table presents the aging of the recorded investment in past due loans by class of loans as of September 30, 2013 and December 31, 2012 (in thousands):

	Loans		Loans over
	30-90 days		90 days				Loans not
	past due		past due		Nonaccrual		past due		Total
September 30, 2013
Commercial	$	299	$	-	$	345	$	220,686	$	221,330
Residential real estate
Home equity lines of credit		388		5		393		97,327		98,113
Multifamily properties		-		-		-		52,901		52,901
Other residential real estate		1,222		114		5,104		118,484		124,924
Nonresidential real estate
Owner occupied properties		1,204		-		6,851		275,079		283,134
Non owner occupied properties		461		-		2,892		276,645		279,998
Construction		14		-		605		98,875		99,494
Consumer
Credit card balances		17		88		-		6,904		7,009
Other consumer		1		-		7		8,961		8,969
Municipal obligations		-		-		-		26,898		26,898
Total	$	3,606	$	207	$	16,197	$	1,182,760	$	1,202,770

	Loans		Loans over
	30-90 days		90 days				Loans not
	past due		past due		Nonaccrual		past due		Total
December 31, 2012
Commercial	$	1,668	$	-	$	740	$	198,976	$	201,384
Residential real estate
Home equity lines of credit		476		-		775		98,806		100,057
Multifamily properties		-		-		-		48,558		48,558
Other residential real estate		6,615		17		4,468		118,571		129,671
Nonresidential real estate
Owner occupied properties		2,809		-		7,000		278,362		288,171
Non owner occupied properties		2,788		-		5,138		277,004		284,930
Construction		738		-		1,075		102,685		104,498
Consumer
Credit card balances		32		22		-		6,905		6,959
Other consumer		5		-		48		9,435		9,488
Municipal obligations		-		-		-		23,128		23,128
Total	$	15,131	$	39	$	19,244	$	1,162,430	$	1,196,844

23

Troubled Debt Restructurings (dollars in thousands):

The Company allocated $1,737 and $2,837 of specific reserves to customers whose loan terms had been modified in troubled debt restructurings as of September 30, 2013 and September 30, 2012, respectively. Troubled debt restructurings totaled $15,963 and $17,130 as of September 30, 2013 and September 30, 2012, respectively. The Company had not committed to lend additional amounts as of September 30, 2013 and September 30, 2012 to customers with outstanding loans that were classified as troubled debt restructurings.

Modifications involving a reduction of the stated interest rate of the loan were for periods up to three years. Modifications involving an extension of the maturity date were for periods ranging from eight to twelve months.

The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ended September 30, 2013 and 2012 (dollars in thousands):

	2013						2012
	Number Of Loans		Pre- Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number Of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial		1	$	19	$	19		1	$	32	$	30
Residential real estate
Home equity lines of credit		-		-		-		-		-		-
Multifamily properties		-		-		-		-		-		-
Other residential real estate		1		21		20		-		-		-
Nonresidential real estate
Owner occupied properties		-		-		-		-		-		-
Non owner occupied properties		-		-		-		-		-		-
Construction		-		-		-		-		-		-
Consumer
Credit card balances		-		-		-		-		-		-
Other consumer		-		-		-		-		-		-
Municipal obligations		-		-		-		-		-		-
Total		2	$	40	$	39		1	$	32	$	30

The two restructured notes added during the third quarter of 2013 for $39 were added as performing troubled debt restructured loans. The one restructured note added in the third quarter 2012 for a total of $30 was added as performing troubled debt restructured loans.

The troubled debt restructurings described above did not have an effect on the allowance for loan losses and resulted in no charge-offs during the third quarters ending September 30, 2013 and 2012. 

24

The following table presents loans by class modified as troubled debt restructurings that occurred during nine months ended September 30, 2013 and 2012 (dollars in thousands):

	2013						2012
	Number Of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number Of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial		3	$	190	$	128		2	$	190	$	184
Residential real estate
Home equity lines of credit		-		-		-		-		-		-
Multifamily properties		1		970		969		1		485		48
Other residential real estate		2		512		511		1		187		186
Nonresidential real estate
Owner occupied properties		-		-		-		1		154		154
Non owner occupied properties		2		970		938		-		-		-
Construction		-		-		-		5		3,205		2,958
Consumer
Credit card balances		-		-		-		-		-		-
Other consumer		-		-		-		-		-		-
Municipal obligations		-		-		-		-		-		-
Total		8	$	2,642	$	2,546		10	$	4,221	$	3,530

The eight restructured notes added during the first nine months of 2013 for $2,546 were added as performing troubled debt restructured loans. The 10 restructured notes added in the first nine months of 2012 for a total of $3,530 were added as performing troubled debt restructured loans.

The troubled debt restructurings described above increased the allowance for loan losses by $0 and resulted in charge-offs of $350 during the nine months ending September 30, 2013 and increased the allowance for loan losses by $1,115 and resulted in charge-offs of $1,262 for the nine months ending September 30, 2012.

25

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the third quarter ending September 30, 2013.

(dollars in thousands)

Troubled Debt Restructurings
That Subsequently Defaulted:	Number of Loans		Recorded Investment
Commercial		1	$	15
Residential real estate
Home equity lines of credit
Multifamily properties		-		-
Other residential real estate		-		-
Nonresidential real estate
Owner occupied properties		-		-
Non owner occupied properties		-		-
Construction		-		-
Consumer
Credit card balances
Other consumer
Municipal obligations		-		-
Total		1	$	15

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification for the nine months ending September 30, 2013.

(dollars in thousands)

Troubled Debt Restructurings
That Subsequently Defaulted:	Number of Loans		Recorded Investment
Commercial		3	$	180
Residential real estate
Home equity lines of credit
Multifamily properties		1		970
Other residential real estate		-		-
Nonresidential real estate
Owner occupied properties		1		150
Non owner occupied properties		3		3,136
Construction		4		1,542
Consumer
Credit card balances
Other consumer
Municipal obligations		-		-
Total		12	$	5,978

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

The troubled debt restructurings that subsequently defaulted described above increased the allowance for loan losses by $31 and resulted in charge-offs of $0 during the third quarter ending September 30, 2013 and resulting in charge-offs of $553 for the nine months ending September 30, 2013.

26

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the third quarter ending September 30, 2012.

(dollars in thousands)

Troubled Debt Restructurings
That Subsequently Defaulted:	Number of Loans		Recorded Investment
Commercial		-	$	0
Residential real estate
Home equity lines of credit		-		-
Multifamily properties		-		-
Other residential real estate		-		-
Nonresidential real estate
Owner occupied properties		-		-
Non owner occupied properties		-		-
Construction		1		659
Consumer
Credit card balances		-		-
Other consumer		-		-
Municipal obligations		-		-
Total		1	$	659

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the nine months ending September 30, 2012.

(dollars in thousands)

Troubled Debt Restructurings
That Subsequently Defaulted:	Number of Loans		Recorded Investment
Commercial		1	$	154
Residential real estate
Home equity lines of credit
Multifamily properties		1		48
Other residential real estate		-		-
Nonresidential real estate
Owner occupied properties		-		-
Non owner occupied properties		2		2,954
Construction		3		3,625
Consumer
Credit card balances		-		-
Other consumer		-		-
Municipal obligations		-		-
Total		7	$	6,781

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

The troubled debt restructurings that subsequently defaulted described above increased the allowance for loan losses by $386 and resulted in charge-offs of $0 during the third quarter ending September 30, 2012 and resulting in charge-offs of $1,112 for the nine months ending September 30, 2012.

27

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, including: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes loans with an outstanding balance greater than $100,000 and non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a quarterly basis. Loans with balances below $100,000 and homogenous loans, such as residential real estate and consumer loans, are analyzed for credit quality based on aging status, which was previously presented. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):

			Special
	Pass		Mention		Substandard		Doubtful		Not Rated(1)		Total
September 30, 2013
Commercial	$	208,695	$	4,551	$	8,084	$	-	$	-	$	221,330
Residential real estate
Home equity lines of credit		11,944		881		1,149		-		84,139		98,113
Multifamily properties		50,447		-		2,454		-		-		52,901
Other residential real estate		34,698		4,241		8,285		-		77,700		124,924
Nonresidential real estate
Owner occupied properties		254,588		6,196		22,350		-		-		283,134
Non owner occupied properties		266,407		5,057		8,534		-		-		279,998
Construction		87,432		8,766		3,296		-		-		99,494
Consumer
Credit card balances		-		-		-		-		7,009		7,009
Other consumer		-		-		6		-		8,963		8,969
Municipal obligations		26,898		-		-		-		-		26,898
Total	$	941,109	$	29,692	$	54,158	$	-	$	177,811	$	1,202,770

(1) Not rated loans represent the homogenous pools risk category.

28

			Special
	Pass		Mention		Substandard		Doubtful		Not Rated(1)		Total
December 31, 2012
Commercial	$	188,686	$	8,469	$	4,229	$	-	$	-	$	201,384
Residential real estate
Home equity lines of credit		10,840		999		1,388		-		86,830		100,057
Multifamily properties		45,329		99		3,130		-		-		48,558
Other residential real estate		35,922		1,146		10,477		-		82,126		129,671
Nonresidential real estate
Owner occupied properties		258,816		13,648		15,707		-		-		288,171
Non owner occupied properties		264,442		8,098		12,390		-		-		284,930
Construction		96,154		2,264		6,080		-		-		104,498
Consumer
Credit card balances		-		-		-		-		6,959		6,959
Other consumer		-		-		141		-		9,347		9,488
Municipal obligations		23,128		-		-		-		-		23,128
Total	$	923,317	$	34,723	$	53,542	$	-	$	185,262	$	1,196,844

(1) Not rated loans represent the homogenous pools risk category. 

Note 10 –Fair Value:

Accounting guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Investment Securities: The fair values of securities available-for-sale are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). One corporate security is valued using Level 3 inputs as there is no readily observable market activity. Management determines the value of this security based on expected cash flows, the credit quality of the security and current market interest rates.

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Derivatives: The Bank’s derivative instruments consist of over-the-counter interest-rate swaps that trade in liquid markets. The fair value of the derivative instruments is primarily measured by obtaining pricing from broker-dealers recognized to be market participants. The pricing is derived from market observable inputs that can generally be verified and do not typically involve significant judgment by the Bank. This valuation method is classified as Level 2 in the fair value hierarchy.

Impaired Loans: At the time a loan is considered impaired, it is recorded at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses. For collateral dependent loans, fair value is commonly 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 independent 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. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Other Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at the lower of cost or fair value less estimated costs to sell. Fair value is commonly 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 independent 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.

Loans Held For Sale: Loans held for sale are carried at the lower of cost or fair value, which is evaluated on a pool-level basis. The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable market data, such as outstanding commitments from third party investors (Level 2).

Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):

			Fair Value Measurements at
			September 30, 2013 Using:
					Significant
			Quoted Prices in		Other		Significant
	Total		Active Markets for		Observable		Unobservable
	September 30,		Identical Assets		Inputs		Inputs
	2013		(Level 1)		(Level 2)		(Level 3)
Assets
Investment securities    available-for-sale
U.S. government sponsored entities     and agencies	$	119,029	$	-	$	119,029	$	-
U.S. government agency     mortgage backed		190,534		-		190,534		-
Corporate		995		-		-		995
Derivatives		1,760		-		1,760		-
Total	$	312,318	$	-	$	311,323	$	995
Liabilities
Derivatives	$	1,760	$	-	$	1,760	$	-
Total	$	1,760	$	-	$	1,760	$	-

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			Fair Value Measurements at
			December 31, 2012 Using:
					Significant
				Quoted Prices in	Other	Significant
	Total			Active Markets for	Observable	Unobservable
	December 31,			Identical Assets	Inputs	Inputs
	2012			(Level 1)	(Level 2)	(Level 3)
Assets
Investment securities available-for-sale
U.S. government sponsored entities and agencies	$	128,477		-	128,477	-
U.S. government agency mortgage backed		184,907		-	184,907	-
Corporate		1,060		-	-	1,060
Derivatives		1,926		-	1,926	-
Total	$	316,370		-	315,310	1,060
Liabilities
Derivatives	$	1,926		-	1,926	-
Total	$	1,926		-	1,926	-

There were no transfers between Level 1 and Level 2 during 2013 or 2012.

There were no gains or losses for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the quarter ended September 30, 2013.

There were no changes in unrealized gains and losses recorded in earnings for the quarter ended September 30, 2013 for Level 3 assets and liabilities that are still held at September 30, 2013.

The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30 (in thousands):

Corporate Securities

	Three months ended		Three months ended
	September 30, 2013		September 30, 2012
Balance of recurring Level 3 assets at January 1	$	995	$	1,060
Total gains or losses for the period:
Included in earnings		-		-
Included in other comprehensive income		-		-
Purchases		-		-
Sales		-		-
Issuances		-		-
Settlements		-		-
Transfers into Level 3		-		-
Transfers out of Level 3		-		-
Balance of recurring Level 3 assets at September 30	$	995	$	1,060

 

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	Nine months ended		Nine months ended
	September 30, 2013		September 30, 2012
Balance of recurring Level 3 assets at January 1	$	1,060	$	1,060
Total gains or losses for the period:
Included in earnings		-		-
Included in other comprehensive income		-		-
Purchases		-		-
Sales		-		-
Issuances		-		-
Settlements		65		-
Transfers into Level 3		-		-
Transfers out of Level 3		-		-
Balance of recurring Level 3 assets at September 30	$	995	$	1,060

The following table presents quantitative information about recurring Level 3 fair value measurements at September 30, 2013(in thousands):

			Valuation
	Fair value		Technique(s)	Unobservable Input(s)	Value
Corporate	$	995	Discounted cash flow	Probability of default	0	%

The interest rate on this security is based on interest rates paid for securities with similar credit characteristics, but the probability of default is determined through a credit quality review rather than formal ratings or other observable inputs. The interest rate adjusts to reflect current market conditions of highly rated investments, if probability of default changed significantly, the interest rate would adjust accordingly and the fair value would be updated. Management reviews this interest rate and the security’s credit quality quarterly and a market value adjustment is made if necessary pursuant to this review.

Assets and Liabilities Measured on a Non-Recurring Basis

(Dollars in thousands)

Assets and liabilities measured at fair value on a non-recurring basis are summarized below:

			Fair Value Measurements at
			September 30, 2013 Using:
					Significant
			Quoted Prices in		Other		Significant
	Total		Active Markets for		Observable		Unobservable
	September 30,		Identical Assets		Inputs		Inputs
	2013		(Level 1)		(Level 2)		(Level 3)
Assets
Impaired loans
Commercial	$	3,393	$		$	-	$	3,393
Nonresidential real estate		-
Owner occupied properties		5,157		-		-		5,157
Non owner occupied properties		869		-		-		869
Residential real estate
Home equity lines of credit		218		-		-		218
Multifamily properties		-		-		-		-
Other		4,064		-		-		4,064
Construction		796		-		-		796
Other real estate owned				-				-
Residential		195						195
Non-residential		3,250		-		-		3,250
Total	$	17,942	$	-	$	-	$	17,942

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			Fair Value Measurements at
			December 31, 2012 Using:
					Significant
			Quoted Prices in		Other		Significant
	Total		Active Markets for		Observable		Unobservable
	December 31,		Identical Assets		Inputs		Inputs
	2012		(Level 1)		(Level 2)		(Level 3)
Assets
Impaired loans
Commercial	$	546	$	-	$	-	$	546
Nonresidential real estate		-
Owner occupied properties		6,346		-		-		6,346
Non owner occupied properties		2,788		-		-		2,788
Residential real estate
Home equity lines of credit		354		-		-		354
Multifamily properties		1,072		-		-		1,072
Other		4,541		-		-		4,541
Construction		2,657		-		-		2,657
Other real estate owned
Residential		396		-		-		396
Non-residential		2,683		-		-		2,683
Total	$	21,383	$	-	$	-	$	21,383

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a gross carrying amount of $19,007 with a valuation allowance of $4,511, resulting in a decrease in provision for loan losses of $150 in the third quarter ending September 2013 and $1,692 for the first nine months of 2013. As of December 31, 2012, impaired loans had a gross carrying amount of $24,560, with a valuation allowance of $6,265, resulting in a decrease in provision for loan losses of $1,178.

Other real estate owned, measured at fair value less costs to sell, had a net carrying amount of $3,445, which is made up of the outstanding balance of $4,126, net of a valuation allowance of $681 at September 30, 2013, resulting in a write-down of $681, for the nine months ended September 30, 2013 and $228 for the quarter ended September 30, 2013. At December 31, 2012, other real estate owned had a net carrying amount of $3,079, made up of the outstanding balance of $3,728, net of a valuation allowance of $649, resulting in a write-down of $369 for the year ended December 31, 2012.

Values for collateral dependent loans and other real estate owned are generally based on appraisals obtained from licensed real estate appraisers and in certain circumstances consideration of offers obtained to purchase properties prior to foreclosure or other factors management deems relevant to arrive at a representative fair value.  Appraisals for commercial real estate generally use three methods to derive value: cost, sales or market comparison and income approach.  The cost method bases value on the cost to replace the current property.  The market comparison approach evaluates the sales price of similar properties in the same market area.  The income approach considers net operating income generated by the property and an investor’s required return.  The final fair value is based on a reconciliation of these three approaches.

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The following table presents quantitative information about recurring Level 3 fair value measurements at September 30, 2013 (in thousands):

	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Discount Range (Avg discount)
Assets
Impaired Loans:
Commercial	$	3,393	Cost, sales, income approach	Adjustment for comparable properties or equipment, market conditions	0-95% (45%)
Nonresidential real estate
Owner occupied properties		5,157	Cost, sales, income approach	Adjustment for comparable properties, market conditions	0-90% (10%)
Non owner occupied properties		869	Cost, sales, income approach	Adjustment for comparable properties, market conditions	80-100% (4%)
Residential real estate
Home equity lines of credit		218	Cost, sales, income approach	Adjustment for comparable properties, market conditions	85-95% (14%)
Other		4,064	Cost, sales, income approach	Adjustment for comparable properties, market conditions	0-100% (9%)
Construction		796	Cost, sales, income approach	Adjustment for comparable properties, market conditions	0-100% (21%)
Other real estate owned
Residential		195	Cost, sales, income approach	Adjustment for comparable properties, market conditions	0-0% (0%)
Non-residential		3,268	Cost, sales, income approach	Adjustment for comparable properties, market conditions	0-0% (0%)
Total	$	17,960

The carrying amounts and estimated fair values of financial instruments at September 30, 2013 and December 31, 2012 are as follows (in thousands):

			Fair Value Measurements at
			September 30, 2013 Using:
	Carrying Value		Level 1		Level 2		Level 3		Total
(Dollars in thousands)
Financial assets
Cash and cash equivalents	$	102,448	$	102,448	$	-	$	-	$	102,448
Interest-bearing deposits with banks		250		250		-		-		250
Securities available-for-sale		310,558		-		309,563		995		310,558
Securities held-to-maturity		78,371		-		77,739		-		77,739
Federal Home Loan Bank stock		5,099		N/A		N/A		N/A		N/A
Loans held for sale		2,435		-		2,435		-		2,435
Loans, net		1,184,561		-		-		1,192,268		1,192,268
Accrued interest receivable		4,156		-		1,397		2,759		4,156
Derivative assets		1,760		-		1,760		-		1,760
Financial liabilities
Deposits	$	(1,524,938)	$	(1,212,541)	$	(313,646)	$	-	$	(1,526,187)
Short-term borrowings		(32,167)		-		(32,167)		-		(32,167)
Notes payable		(50,695)		-		(26,160)		(17,414)		(43,574)
Accrued interest payable		(717)		-		(705)		(12)		(717)
Standby letters of credit		(233)		-		-		(233)		(233)
Derivative liabilities		(1,760)		-		(1,760)		-		(1,760)

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			Fair Value Measurements at
			December 31, 2012 Using:
	Carrying Value		Level 1		Level 2		Level 3		Total
(Dollars in thousands)
Financial assets
Cash and cash equivalents	$	151,832	$	151,832	$	-	$	-	$	151,832
Interest-bearing deposits with     banks		250		250		-		-		250
Securities available-for-sale		314,444		-		313,384		1,060		314,444
Securities held-to-maturity		66,843		-		68,504		-		68,504
Federal Home Loan Bank stock		5,099		N/A		N/A		N/A		N/A
Loans held for sale		16,324		-		16,324		-		16,324
Loans, net		1,178,841		-		-		1,182,273		1,182,273
Accrued interest receivable		4,259		-		1,447		2,812		4,259
Derivative assets		1,926				1,926		-		1,926
Financial liabilities
Deposits	$	(1,570,007)	$	(1,210,925)	$	(360,671)	$	-	$	(1,571,596)
Short-term borrowings		(41,408)		-		(41,408)		-		(41,408)
Notes payable		(48,715)		-		(22,392)		(17,192)		(39,584)
Accrued interest payable		(1,031)		-		(1,018)		(13)		(1,031)
Standby letters of credit		(271)		-		-		(271)		(271)
Derivative liabilities		(1,926)		-		(1,926)		-		(1,926)

Estimated fair value for both securities available-for-sale and held-to-maturity and derivatives were previously described.

The methods and assumptions, not previously presented, used to estimate fair values are described as follows:

Cash and cash equivalents: The carrying amounts of cash and cash equivalents approximate fair values and are classified as Level 1.

Interest-bearing deposits with banks: The carrying amount of interest-bearing deposits equivalents approximate fair value and are classified a Level 1.

Federal Home Loan Bank stock: It is not practicable to determine the fair value of Federal Home Loan Bank stock due to restrictions placed on its transferability.

Loans held for sale: The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification.

Loans, net: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

35

Accrued interest receivable/payable: The carrying amounts of accrued interest approximate fair value resulting in a Level 1, Level 2 or Level 3 classification consistent with the classification of the asset/liability with which they are associated.

Deposits: The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. The carrying amounts of variable rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date resulting in a Level 2 classification. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

Short-term borrowings: The carrying amounts of short-term borrowings, generally maturing within ninety days, approximate their fair values resulting in a Level 2 classification.

Notes payable: The carrying amounts of borrowings under repurchase agreements approximate their fair values resulting in a Level 2 classification. The fair values of the Company’s long-term borrowings are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification. The fair values of the Company’s subordinated debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.

Standby letters of credit and off-balance sheet instruments: Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing, which results in a level 3 classification. The fair value of commitments is not material. Estimated fair value of standby letters of credit are based on their current unearned fee balance. Estimated fair value for commitments to make loans and unused lines of credit are considered nominal.

36

 

Note 11- Accumulated Other Comprehensive Income

The following table summarizes the changes within each classification of accumulated other comprehensive income for the nine months ended September 30, 2013: 

Reclassifications Out Of Accumulated Other Comprehensive Income

Details about Accumulated other Comprehensive Income Components	Amount Reclassified From Accumulated Other Comprehensive Income		Affected Line Item In the Statement Where Net Income is Presented
		(in thousands)
Unrealized gains and losses on available-for-sale securities	$	274	Net securities gains
		(96)	Income tax expense
	$	178	Net of tax

There were no reclassifications out of accumulated other comprehensive income for the three months ended September 30, 2013.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The objective of this section is to help shareholders and potential investors understand our views on our results of operations and financial condition. You should read this discussion in conjunction with the consolidated financial statements and notes to the consolidated financial statements that appear elsewhere in this quarterly report on form 10-Q (this “Quarterly Report”). References to the “Company,” “BKFC,” “we,” “us,” and “our” in this section refer to the Bank of Kentucky Financial Corporation and its subsidiaries, including The Bank of Kentucky, Inc. (the “Bank”), unless otherwise specified or unless the context otherwise requires.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this quarterly report which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not limited to, projections of revenues, income or loss, earnings or loss per share, the payment or non-payment of dividends, capital structure and other financial items; statements of plans and objectives of us or our management or Board of Directors; and statements of future economic performance and statements of assumptions underlying such statements. Words such as “believes,” “anticipates,” “intends” and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

37

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, the following:

· indications of an improving economy may prove to be premature;

· general economic or industry conditions could be less favorable than expected, resulting in a deterioration in credit quality, a change in the allowance for credit losses, or a reduced demand for credit or fee-based products and services;

· changes or volatility in interest rates may adversely impact the value of securities, loans, deposits and other financial instruments and the interest rate sensitivity of our balance sheet as well as our liquidity;

· our ability to determine accurate values of certain assets and liabilities;

· the impact of turmoil in the financial markets and the effectiveness of governmental actions taken in response, and the effect of such governmental actions on us, our competitors and counterparties, financial markets generally and availability of credit specifically;

· changes in the extensive laws, regulations and policies governing financial services companies, including the Dodd-Frank Act and any regulations promulgated thereunder;

· the potential need to adapt to industry changes in information technology systems, on which the Bank is highly dependent, could present operational issues or require significant capital spending;

· competitive pressures could intensify and affect the Bank’s profitability, including as a result of continued industry consolidation, the increased availability of financial services from non-banks, technological developments or bank regulatory reform;

· acquisitions may not produce revenue enhancements or cost savings at levels or within timeframes originally anticipated, or may result in unforeseen integration difficulties; and

· other risks and uncertainties summarized above under “Item 1A., Risk Factors,” in this Annual Report.

Any forward-looking statements made by us or on our behalf speak only as of the date they are made, and we do not undertake any obligation to update any forward-looking statement to reflect the impact of subsequent events or circumstances. Before making an investment decision, you should carefully consider all risks and uncertainties disclosed in our other public documents on file with the Securities and Exchange Commission (“SEC”), including those described in Item 1A of our Annual Report on Form 10-K, for the year ended December 31, 2012.

38

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

BKFC has prepared all of the consolidated financial information in this quarterly report in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). In preparing the consolidated financial statements in accordance with GAAP, BKFC makes estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurances that actual results will not differ from those estimates.

We have identified the accounting policy related to the allowance for loan losses as critical to the understanding of BKFC’s results of operations, since the application of this policy requires significant management assumptions and estimates that could result in reporting materially different amounts if conditions or underlying circumstances were to change.

The Bank maintains an allowance to absorb probable, incurred loan losses inherent in the loan portfolio. The allowance for loan losses is maintained at a level the Bank considers to be adequate and is based upon ongoing quarterly assessments and evaluations of the collectability and historical loss experience of loans. Loan losses are charged and recoveries are credited to the allowance for loan losses. Provisions for loan losses are based on the Bank’s review of its historical loan loss experience and such factors that, in management’s judgment, deserve consideration under existing economic conditions in estimating probable loan losses. The Bank’s strategy for credit risk management includes a combination of well-defined credit policies, uniform underwriting criteria, and ongoing risk monitoring and review processes for all commercial and consumer credit exposures. The credit risk management strategy also includes assessments of compliance with commercial and consumer policies, risk ratings and other important credit information. The strategy also emphasizes regular credit examinations and management reviews of loans exhibiting deterioration in credit quality. The Bank strives to identify potential problem loans early and promptly undertake the appropriate actions necessary to mitigate or eliminate the increasing risk identified in these loans.

The allowance for loan losses consists of two components, the specific reserve, pursuant to ASC 310, Accounting by Creditors for Impairment of a Loan, and the general reserve, pursuant to ASC 450-10, Accounting for Contingencies. A loan is considered impaired when, based upon current information and events, it is probable that the bank will be unable to collect all amounts due according to the contractual terms of the loan. The specific reserve component is an estimate of loss based upon an impairment review of larger loans that are considered impaired. The general reserve includes an estimate of commercial and consumer loans with similar characteristics. Depending on the set of facts with respect to a particular loan, the Bank utilizes one of the following methods for determining the proper impairment of a loan:

· the present value of expected future cash flows of a loan;

· the market price of the loan based upon readily available information for that type of loan; and

· the fair value of collateral.

39

The allowance established for impaired loans is generally based, for all collateral-dependent loans, on the fair value of the collateral, less the estimated cost to liquidate. For non-collateral dependent loans (such as accruing troubled debt restructurings), the allowance is based on the present value of expected future cash flows discounted by the loan’s effective interest rate. A small portion of the Bank’s loans which are impaired under the ASC 310 process carry no specific reserve allocation. These loans were reviewed for impairment and are considered adequately collateralized with respect to their respective outstanding principal loan balances. The majority of these loans are loans which have had their respective impairment (or specific reserve) amounts charged off, or are loans related to other impaired loans which continue to have a specific reserve allocation. It is the Bank’s practice to maintain these impaired loans, as analyzed and provided for in the ASC 310 component of the allowance for loan losses, to avoid double counting of any estimated losses that may have been included in the ASC 450-10 component of the allowance for loan losses.

Generally, the Bank orders a new or updated appraisal on real estate properties which are subject to an impairment review. Upon completion of the impairment review, loan reserves are increased as warranted. Charge-offs, if necessary, are generally recognized in a period after the reserves were established. Adjustments to new or updated appraisal values are not typically done, but in those cases when an adjustment is necessary, it is documented with supporting information and typically results in an adjustment to decrease the property’s value because of additional information obtained concerning the property after the appraisal or update has been received by the Bank. The Bank’s practice is to obtain new or updated appraisals or evaluation on the loans subject to impairment. If a new or updated appraisal is not available at the time of a loan’s impairment review, the Bank typically applies a discount to the value of an old appraisal to reflect the property’s current estimated value if there is believed to be deterioration in either (i) the physical or economic aspects of the subject property or (ii) any market conditions. Updated valuations on 1 to 4 family residential properties with small to moderate values are generally accomplished by obtaining an evaluation or appraisal. Generally, an “as is” value is utilized in most of the Bank’s real estate based impairment analyses. However, under certain limited circumstances, an “as stabilized” valuation may be utilized, provided that the “as stabilized” value is tied to a well-justified action plan to bring the real estate project to a stabilized occupancy under a reasonable period of time.

If a partially charged-off loan has been restructured in a manner that is reasonably assured of repayment and performance according to prudently modified terms, and has sustained historical payment performance for a reasonable period of time prior to and/or after the restructuring, it may be returned to accrual status and is classified as a TDR loan. However, if the above conditions can not be reasonably met, the loan remains on non-accrual status.

In addition, the Bank evaluates the collectability of both principal and interest when assessing the need for loans to be placed on non-accrual status. Non-accrual status denotes loans in which, in the opinion of management, the collection of additional interest is unlikely. A loan is generally placed on non-accrual status if: (i) it becomes 90 days or more past due or (ii) for which payment in full of both principal and interest cannot be reasonably expected.

Historical loss rates are applied to all other loans not subject to specific reserve allocations. The loss rates applied to loans are derived from analyzing the loss experience sustained on loans according to their internal risk rating. These loss rates may be adjusted to account for environmental factors. The general reserve also includes homogeneous loans, such as consumer installment, residential mortgage and home equity loans that are not individually risk graded. For these loans that are not individually risk graded, the historical loss experience of the portfolio is used to determine the appropriate allowance for the portfolios. Allocations for the allowance are established for each pool of loans based on the expected net charge-offs for one year.

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Management utilizes a detailed approach to setting the environmental adjustments to the historical loss. Factors that management considers as part of this approach in setting the environmental adjustments include economic trends, loan policies, lender experience, loan growth, delinquency trend, non-performing asset trends, classified loan trends and credit concentrations. 

Reserves on individual loans and historical loss rates are reviewed quarterly and adjusted as necessary based on changing borrower and/or collateral conditions, as well as actual collection and charge-off experience.

Charge-offs are recognized when it becomes evident that a loan or a portion of a loan is deemed uncollectible regardless of its delinquent status. The Bank generally charges off that portion of a loan that is determined to be unsupported by an obligor’s continued ability to repay the loan from income and/or assets, both pledged and unpledged as collateral.

OVERVIEW

Economic Overview

Despite mixed economic news in the third quarter of 2013, the overall economic recovery remains muted after a deep recession, highlighted by high unemployment, depressed real estate values and high levels of problem assets in the banking industry. In the third quarter of 2013, it is anticipated that the economy grew at a rate of 1.9% over the previous quarter, which remains well below the historical normalized 3% growth rate.  For the year, the U.S. economy is expected to grow at a rate of 1.60% over 2012’s output, which is slightly lower than the previous estimate of 1.80%. The lower estimates are a result of a decrease in government spending and personal consumption. The national unemployment rate fell in the third quarter by 0.27% to 7.30% and the economy also produced 430,000 non-farm jobs in the quarter. The Company believes the major risks to the economy for 2013 will be the ongoing financial stress in Europe, a significant slowdown in China or other developing nations, a “double dip” in the housing market resulting in a significant drop in prices and sustained higher energy and commodity prices. Despite the recent increase in longer term interest rates, short term interest rates remain low and show no signs of increasing in the near term. The Federal Reserve remains committed to its pledge to keep rates extremely low as long as necessary.

2013 Third Quarter and Nine Month Performance Overview

The Company completed the third quarter and first nine months of 2013 with a 29% and a 6% increase in diluted earnings per share respectively. These results reflect overall improving credit metrics, revenue growth and contained non-interest expense, which was partially offset by the compression of the net interest margin. Also, in the third quarter of 2013, total loans increased $15,744,000 (1%) from the previous quarter, which was the largest quarterly increase that the Company has experienced in 2013. The 29% increase in diluted earnings per share for the third quarter of 2013 compared with the same period in 2012 was the result of a $1,600,000 (73%) reduction in the provision for loan losses, $155,000 (1%) growth in revenue and an $80,000 (1%) decrease in non-interest expense as compared to the same period in 2012. The reduction in the provision for loan losses was accompanied by lower levels of charge-offs and lower levels of adversely classified loans from both the previous year and on a sequential basis from the second quarter of 2013. The compression of the net interest margin is the result of the historically low interest rate environment, where the cost of funds are close to a floor and the yield on earning assets still has room to decline.

 

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In the second quarter of 2013, the Company completed the repurchase of the warrant (the “Warrant”) from the U.S. Department of the Treasury (the “Treasury”) issued on February 13, 2009, as part of the TARP Capital Purchase Program for an aggregate repurchase price of $2,150,649. Prior to the repurchase transaction, the Warrant permitted the Treasury to purchase 276,078.12 shares of the Company’s common stock at an exercise price of $18.473 per share. The Warrant originally had provided for the purchase of 274,784 shares of the Company’s common stock at an exercise price of $18.56 per share and was thereafter adjusted for certain cash dividends declared by the Company from time to time. The Warrant had been issued in connection with the Company's sale to the Treasury of 34,000 shares of the Company's Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Preferred Stock”) in 2009. As previously disclosed on the Company’s Current Report on Form 8-K filed November 23, 2011, the Company completed the repurchase of the remaining outstanding Preferred Stock from the Treasury on November 23, 2011. As a result of the Warrant repurchase, the Company has repurchased all securities issued to the Treasury under the TARP Capital Purchase Program. The repurchase of the Warrant was funded by a $2,000,000 note payable.

The following sections provide more detail on subjects presented in the overview.

FINANCIAL CONDITION

Total assets at September 30, 2013 were $1,802,224,000 as compared to $1,844,104,000 at December 31, 2012, a decrease of $41,880,000 (2%). Cash and cash equivalents decreased $49,384,000 (33%) from $151,832,000 at December 31, 2012 to $102,448,000 at September 30, 2013. Loans outstanding increased $5,784,000 from $1,195,409,000 at December 31, 2012 to $1,201,193,000 at September 30, 2013.

As Table 1 illustrates, the increase in the loan portfolio in 2013 was the result of an increase in commercial loans of $19,946,000 (10%) and was offset with a decrease in commercial real estate loans of 9,969,000 (2%). Management expects a steady, although slow, increase in loan demand in 2013, mirroring the current economic conditions as discussed above. The Bank intends to continue to make loans that meet its longstanding prudent lending standards.

The increase in the cash surrender value of life insurance was primarily the result of the purchase of $5,000,000 in Bank owned life insurance policies in the first quarter of 2013. The Bank is the beneficiary of these policies, and the earnings from the increase in the cash surrender value of the policies are used to offset certain personnel benefit cost.

 

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Deposits decreased $40,502,000 to $1,529,505,000 at September 30, 2013, compared to $1,570,007,000 at December 31, 2012. The largest decrease in deposits came from interest bearing transaction deposits which decreased $30,129,000, or 6%, from December 31, 2012. The Bank’s interest bearing transaction accounts include public fund accounts which decreased $34,389,000, or 9%, from the end of 2012. Public funds are deposits of local municipalities, schools and other public entities, and tend to be cyclical in nature with higher balances in the fourth quarter of the year as a result of property tax receipts. Other changes included increases in non-interest bearing deposits (up $24,195,000 or 7%) and savings deposits (up $21,706,000 or 18%), which were partially offset by a decrease in certificates of deposits (CDs) (down $43,274,000 or 14%). Management believes that the lower level of interest rates offered on CDs has made them less desirable to consumers and these funds have moved to savings deposits.

Table 1 Composition of the Bank’s loans and deposits at the dates indicated:

	September 30, 2013				December 31, 2012
	Amount		%		Amount		%
	(Dollars in thousands)
Type of Loan:
Commercial real estate loans	$	563,132	46.8	%	$	573,101	47.9	%
One- to four-family residential real estate      loans		275,938	23.0			278,286	23.3
Commercial loans		221,330	18.4			201,384	16.8
Consumer loans		15,978	1.3			16,447	1.4
Construction and land development      loans		99,494	8.3			104,498	8.7
Municipal obligations		26,898	2.2			23,128	1.9
Total loans	$	1,202,770	100.0	%	$	1,196,844	100.0	%
Less:
Deferred loan fees		1,577				1,435
Allowance for loan losses		16,632				16,568
Net loans	$	1,184,561			$	1,178,841
Type of Deposit:
Non-interest bearing deposits		376,111	24.6	%		351,916	22.4	%
Interest bearing transaction deposits		468,570	30.6			498,699	31.8
Money market deposits		228,247	14.9			237,842	15.2
Savings deposits		144,174	9.5			122,468	7.8
Certificates of deposits		255,487	16.7			298,761	19.0
Individual retirement accounts		56,916	3.7			60,321	3.8
Total deposits	$	1,529,505	100.0	%	$	1,570,007	100.0	%

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RESULTS OF OPERATIONS

GENERAL

Net income for the nine months ended September 30, 2013 increased from $13,135,000 ($1.76 diluted earnings per share) in 2012 to $13,990,000 ($1.87 diluted earnings per share) in 2013, an increase of $855,000 (7%). Net income for the quarter ended September 30, 2013 was $5,415,000 ($.72 diluted earnings per share) as compared to $4,196,000 ($.56 diluted earnings per share) during the same period of 2012, an increase of $1,219,000 (29%). The primary reason for the increase in net income from the third quarter of 2012 compared with the third quarter of 2013 was a $1,600,000 (73%) decrease in the provision for loan losses, which was reflective of lower charge-offs and lower levels adversely classified loans compared with the third quarter of 2012. Also contributing to the increase in net income from the third quarter of 2012 to the third quarter of 2013 was a $195,000 (3%) increase in non-interest income and an $80,000 decrease in non-interest expense, which was partially offset by a $40,000 decrease in the net interest income. The increase in non-interest income included increases in trust fee income (up 19%), service charges on deposits (up 22%) and bankcard transaction revenue (up 8%), which was partially offset by a decrease in mortgage banking income (down 69%). The decrease in net interest income was the result of compression of the net interest margin that decreased 14 basis points from 3.64% in the third quarter of 2012 to 3.50% in the third quarter of 2013.

NET INTEREST INCOME

Net interest income decreased $40,000 in the third quarter of 2013 as compared to the same period in 2012, while the year to date total decreased $640,000 (2%) from $41,853,000 in 2012 to $41,213,000 in 2013. As illustrated in Table 2 below, the net interest margin of 3.50% for the third quarter of 2013 was 14 basis points lower than the 3.64% net interest margin for the third quarter of 2012. As discussed in the overview section of the report, the decline in the interest margin was the result of the historically low interest rate environment, where the cost of funds are close to a floor and the yield on earning assets still has room to decline. The cost of interest-bearing liabilities decreased 12 basis points from .47% for the third quarter of 2012 to .35% in the third quarter of 2013, while the yield on earning assets decreased 25 basis points from 4.02% for the third quarter of 2012 to 3.77% for the third quarter of 2013.

As illustrated in Table 2, average interest earning assets increased $54,947,000 or 4% from the third quarter of 2012 to the third quarter of 2013, while average interest bearing liabilities only increased $9,562,000 or 1% in the same period. Table 4 shows that the net interest income on a fully tax equivalent basis was positively impacted by the volume additions to the balance sheet by $601,000, which was offset with a negative rate variance of $653,000. As further illustrated in Table 4, the favorable volume variance was driven by the increase in interest income attributable to loans of $488,000. Driving the increase in interest income from loans was a $41,752,000 or 4% increase in the average balance of loans outstanding from the third quarter of 2012 to the third quarter of 2013. As the negative rate variance in the third quarter of 2013 shows, if rates were to continue to fall in 2013, the effect on the Company is expected to be negative, as shown and explained below.

 

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The Company uses an earnings simulation model to estimate and evaluate the impact of changing interest rates on earnings. The model projects the effect of instantaneous movements in interest rates of both 100 and 200 basis points. By simulating the effects of movements in interest rates, the model can estimate the Company’s interest rate exposure. The results of the model are used by management to approximate the results of rate changes and do not indicate actual expected results. As shown below, the September 30, 2013 simulation analysis indicates that the Company is in a slightly liability interest rate sensitive position, with the net interest income negatively impacted by rising rates. As a result of the current historically low rate environment, the effects of a 100 basis point decrease in rates would also be negative to the net interest income. This is the result of a significant portion of the interest-bearing liabilities already having a cost below 1.00%.

Net interest income estimates are summarized below.

	Net Interest Income Change
Increase 200 bp	.01	%
Increase 100 bp	(.18)
Decrease 100 bp	(4.43)

Tables 2 and 3 set forth certain information relating to the Bank’s average balance sheet information and reflects the average yield on interest-earning assets, on a tax equivalent basis, and the average cost of interest-bearing liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average monthly balance of interest-earning assets or interest-bearing liabilities, respectively, for the periods presented. Average balances are daily averages for the Bank and include non-accruing loans in the loan portfolio, net of the allowance for loan losses.

 

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Table 2- Average Balance Sheet Rates for Three Months Ended September 30, 2013 and 2012 (presented on a tax equivalent basis in thousands)

	Three Months ended September 30, 2013							Three Months ended September 30,   2012
	Average   outstanding  balance			Interest  earned/ paid		Yield/ rate		Average   outstanding  balance			Interest  earned/ paid		Yield/ rate
Interest-earning assets:
Loans receivable (1)(2)	$	1,199,824		$	13,442	4.44	%	$	1,158,072		$	13,926	4.78	%
Securities (2)		386,644			1,835	1.88			369,707			1,763	1.90
Other interest-earning assets		29,039			73	1.00			32,781			71	0.86
Total interest-earning assets		1,615,507			15,350	3.77			1,560,560			15,760	4.02
Non-interest-earning assets		155,984							147,283
Total assets	$	1,771,491						$	1,707,843
Interest-bearing liabilities:
Transaction accounts		848,512			327	0.15			796,346			418	0.21
Time deposits		316,435			519	0.65			369,327			796	0.86
Borrowings		80,733			266	1.31			70,445			257	1.45
Total interest-bearing      liabilities		1,245,680			1,112	0.35			1,236,118			1,471	0.47
Non-interest-bearing liabilities		353,071							305,689
Total liabilities		1,598,751							1,541,807
Shareholders’ equity		172,740							166,036
Total liabilities and      shareholders’ equity	$	1,771,491						$	1,707,843
Net interest income				$	14,238						$	14,289
Interest rate spread						3.42	%						3.55	%
Net interest margin (net interest      income as a percent of average      interest-earning assets)						3.50	%						3.64	%
Effect of net free funds (earning      assets funded by non-interest      bearing liabilities)						0.08	%						0.09	%
Average interest-earning assets to      interest-bearing liabilities		129.69	%						126.25	%

(1)	Includes non-accrual loans.
(2)	Income presented on a tax equivalent basis using a 35.00% tax rate in 2013 and 2012, respectively. The tax equivalent adjustment was $316,000 and $327,000 in 2013 and 2012, respectively

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Table 3- Average Balance Sheet Rates for Nine Months Ended September 30, 2013 and 2012 (presented on a tax equivalent basis in thousands)

	Nine Months ended September 30, 2013							Nine Months ended September 30, 2012
	Average outstanding balance			Interest earned/ paid		Yield/ rate		Average outstanding balance			Interest earned/ paid		Yield/ rate
Interest-earning assets:
Loans receivable (1)(2)	$	1,195,042		$	40,226	4.48	%	$	1,142,833		$	41,832	4.89	%
Securities (2)		383,551			5,240	1.82			373,036			5,684	2.04
Other interest-earning assets		53,803			247	0.61			63,895			242	0.51
Total interest-earning assets		1,632,396			45,713	3.74			1,579,764			47,758	4.04
Non-interest-earning assets		158,527							148,025
Total assets	$	1,790,923						$	1,727,789
Interest-bearing liabilities:
Transaction accounts		874,240			1,081	0.17			810,382			1,313	0.22
Time deposits		333,857			1,743	0.70			384,549			2,815	0.98
Borrowings		77,024			743	1.29			75,657			801	1.41
Total interest-bearing      liabilities		1,285,121			3,567	0.37			1,270,588			4,929	0.52
Non-interest-bearing liabilities		333,792							295,194
Total liabilities		1,618,913							1,565,782
Shareholders’ equity		172,010							162,007
Total liabilities and      shareholders’ equity	$	1,790,923						$	1,727,789
Net interest income				$	42,146						$	42,829
Interest rate spread						3.37	%						3.52	%
Net interest margin (net interest      income as a percent of average      interest-earning assets)						3.45	%						3.62	%
Effect of net free funds (earning      assets funded by non-interest      bearing liabilities)						0.08	%						0.10	%
Average interest-earning assets to      interest-bearing liabilities		127.02	%						124.33	%

(1)	Includes non-accrual loans.
(2)	Income presented on a tax equivalent basis using a 35.00% tax rate in 2013 and 2012. The tax equivalent adjustment was $933,000 and $976,000 in 2013 and 2012, respectively.

Table 4 below illustrates the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities have affected the Bank’s interest income and expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (change in volume multiplied by prior year rate), (ii) changes in rate (change in rate multiplied by prior year volume) and (iii) total changes in rate and volume. The combined effects of changes in both volume and rate, which cannot be separately identified, have been allocated proportionately to the change due to volume and the change due to rate.

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Table 4-Volume/Rate Analysis (in thousands)

	Three months ended September 30,  2013 Compared to   Three months ended September 30, 2012						Nine months ended September 30,  2013 Compared to   Nine months ended September 30, 2012
	Increase (Decrease) Due to						Increase (Decrease) Due to
	Volume		Rate		Total		Volume		Rate		Total
Interest income attributable to:
Loans receivable	$	488	$	(972)	$	(484)	$	1,858	$	(3,465)	$	(1,606)
Securities		80		(8)		72		157		(601)		(445)
Other interest-earning assets(1)		(9)		11		2		(42)		47		5
Total interest-earning assets		559		(969)		(410)		1,973		(4,019)		(2,046)
Interest expense attributable to:
Transactions accounts		26		(117)		(91)		98		(330)		(232)
Time deposits		(103)		(174)		(277)		(339)		(734)		(1,072)
Borrowings		35		(26)		9		14		(72)		(58)
Total interest-bearing liabilities		(42)		(317)		(359)		(227)		(1,136)		(1,363)
Increase (decrease) in net interest income	$	601	$	(653)	$	(51)	$	2,200	$	(2,883)	$	(683)

(1) Includes federal funds sold and interest-bearing deposits in other financial institutions.

PROVISION FOR LOAN LOSSES

Like many other financial institutions, the Bank has been significantly affected by the national economic downturn that began over six years ago. While the Bank has experienced an increase in defaults and foreclosures in this economic period, the levels of such activity have been significantly less than other regions in the country due, in part, to the fact that the Bank’s market in the northern Kentucky and greater Cincinnati area did not experience as dramatic a rise in real estate values over the last several years as other markets.

Although the Bank is seeing the benefit of the current slow economic recovery, management believes that with the continuing economic uncertainty, high unemployment rates and low real estate values, the resulting pressure on earnings will remain above historical levels. While charge-offs have decreased significantly from the peak of the current recession, management believes that the effect of the continuing economic uncertainty will include higher levels of charge-offs than were experienced before the economic recession began in 2008. Management believes that loan growth experienced in 2013 is consistent with the slowly improving economic conditions, and management anticipates slowly growing demand for loans in the coming quarters.

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Provision for loan losses decreased $1,600,000 in the third quarter of 2013 as compared to the same period in 2012, while the year to date total decreased $1,500,000 (26%) from $5,700,000 in 2012 to $4,200,000 in 2013. The decrease in the provision for loan losses in the third quarter of 2013 reflected lower levels of charged-off loans in the third quarter of 2013 versus the third quarter of 2012. For the third quarter of 2013, net charge-offs were $618,000 or .21% of average loan balances compared to 2012 figures of $3,961,000 or 1.39% of average loan balances. The third quarter of 2013 saw lower levels of non-performing loans compared with December 31, 2012; and on a sequential basis non-performing loans decreased from the second quarter of 2013. As illustrated in Table 6 below, total non-accrual loans plus loans past due 90 days or more were $16,404,000 (1.37% of loans outstanding) at September 30, 2013, compared to $19,283,000 (1.61% of loans outstanding) at December 31, 2012. Management’s evaluation of the inherent risk in the loan portfolio considers both historical losses and information regarding specific borrowers. Management continues to monitor the non-performing relationships and has established appropriate reserves.

On a sequential basis, the provision for loan losses of $600,000 in the third quarter of 2013 was $1,000,000 lower than the provision in the second quarter of 2013, as non-performing loans decreased from $18,945,000 (1.60% of total loans) at June 30, 2013 to $16,404,000 (1.37% of total loans) at September 30, 2013. Net charge-offs on a sequential basis decreased from $1,591,000 (.54% of loans) in the second quarter of 2013 to $618,000 (.21% of loans) in the third quarter of 2013.

The provision for loan losses by portfolio segment for the third quarter of 2013, included in Note 9 of the financial statements, included the effects of higher specific reserves in the commercial portfolio and a higher general reserve for residential real estate loans which were partially offset by the effects of lower levels of specific reserves in the non residential real estate portfolio and the construction portfolio.

The aggregate amounts of the Bank’s classified assets at September 30, 2013 and December 31, 2012 were as follows:

		September 30, 2013	December 31, 2012
		(Dollars in thousands)
Special mention (risk rating 6)	$	29,692	$	34,722
Substandard (risk rating 7 & 8)		54,158		53,542
Doubtful (risk rating 9)		0		0
Total classified assets	$	83,850	$	88,264

Non-performing assets, which include non-performing loans, other real estate owned (“OREO”) and repossessed assets, totaled $22,545,000 at September 30, 2013 versus $24,679,000 at December 31, 2012. This represents 1.26% of total assets at September 30, 2013 compared to 1.34% at December 31, 2012. While non-performing loans decreased, as discussed above, from December 31, 2012 to the third quarter of 2013, OREO balances increased $745,000 (14%) from $5,396,000 at December 31, 2012 to $6,141,000 at September 30, 2013. These properties are initially recorded at their fair value less estimated costs to sell with the difference between this value and the loan balance being recorded as a charge-off. On a sequential quarterly basis OREO balances increased $934,000 or 18%, as the result of one commercial relationship that added $1,600,000 to the total.

 

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Troubled Debt Restructurings (TDRs). In certain circumstances, the Bank may modify the terms of a loan to maximize the collection of amounts due. In cases where the borrower is experiencing financial difficulties or is expected to experience difficulties in the near-term, concessionary modification is granted to minimize or eliminate the economic loss and to avoid foreclosure or repossession of the collateral. Modifications may include interest rate reductions, extension of the maturity date or a reduction in the principal balance. Restructured loans accrue interest as long as the borrower complies with the modified terms. Performing TDRs are loans that are paying pursuant to the agreed upon modified terms and are not more than 30 days past due. Non-performing TDRs are the remainder. Total performing TDRs, which are not considered non-performing loans by management, were $7,109,000 at September 30, 2013 as compared to $6,046,000 at December 31, 2012. Total nonperforming TDRs were $8,854,000 at September 30, 2013 as compared to $11,095,000 at December 31, 2012. In order to proactively manage and resolve problem loans, the Bank expects higher than normal levels of TDRs as it continues to work with relationships that show signs of stress. All TDRs are considered impaired loans and any specific reserves related to the TDRs are included in the allowance for loan losses on the balance sheet. Any additional specific reserves related to TDRs added or reduced in a period would be reflected in the provision for loan losses on the income statement for that period. Ordinarily, loans are identified as potential problem loans, through a higher risk weighting, before actually being restructured.

Allowance for Loan Losses (“ALL”).  The ALL was relatively stable as the impact of lower levels of adversely classified loans and lower levels of specific loan reserves were offset by higher historic loss ratios. The higher historic loss ratios were the result of management’s decision to extend the look back period on classified and satisfactory loans. Management believes that these changes were necessary to reflect the probable incurred losses in the loan portfolio. Management believes this is directionally consistent in the first nine months of 2013 with the change in the credit metrics and the continued uncertain economic conditions experienced since December 31, 2012. The ALL increased $64,000 from $16,568,000 at December 31, 2012 to $16,632,000 at September 30, 2013. The increase in the ALL coupled with a slight increase in loans outstanding in the first nine months of 2013 led to a decrease in the allowance for loan losses as a percentage of total loans from 1.39% at December 31, 2012 to 1.38% at September 30, 2013. The amount of the allowance allocated to impaired loans at the end of the third quarter of 2013, was $4,573,000, which was down $1,692,000 from $6,265,000 at December 31, 2012. The majority of the loans charged off in the first nine months of 2013 were reserved for at December 31, 2012. The impairment process is described in the “Critical Accounting Policies and Estimates” section of this Quarterly Report. Management believes the current level of the ALL is sufficient to absorb probable incurred losses in the loan portfolio. Management continues to monitor the loan portfolio closely and believes the provision for loan losses is directionally consistent with the changes in the probable losses inherent in the loan portfolio from the year end of 2012 to September 30, 2013. The Bank does not originate or purchase sub-prime loans for its portfolio. Management will continue to monitor and evaluate the effects of the current housing market conditions and any signs of further deterioration in credit quality on the Bank’s loan portfolio. Management believes the current economic strains will continue throughout 2013 and expects continuing higher than normal credit losses and provisioning expense in the foreseeable future.

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Monitoring loan quality and maintaining an adequate allowance is an ongoing process overseen by senior management and the loan review function. On at least a quarterly basis, a formal analysis of the adequacy of the ALL is prepared and reviewed by management and the Board of Directors. This analysis serves as a point in time assessment of the level of the ALL and serves as a basis for provisions for loan losses. The loan quality monitoring process includes assigning loan grades and the use of a watch list to identify loans of concern.

The following tables set forth an analysis of certain credit risk information for the periods indicated:

Table 5-Summary of Loan Loss Experience and Allowance for Loan Loss Analysis (in thousands)

	Three Months ended September 30,						Nine Months ended September 30,
	2013			2012			2013			2012
Balance of allowance at beginning of period	$	16,650		$	18,346		$	16,568		$	18,288
Recoveries of loans previously charged off:
Commercial loans		226			203			587			215
Consumer loans		75			73			251			250
Mortgage loans		106			2			109			9
Total recoveries		407			278			947			474
Loans charged off:
Commercial loans		123			2,724			2,283			5,409
Consumer loans		265			726			946			1,290
Mortgage loans		637			789			1,854			1,178
Total charge-offs		1,025			4,239			5,083			7,877
Net charge-offs		(618)			(3,961)			(4,136)			(7,403)
Provision for loan losses		600			2,200			4,200			5,700
Balance of allowance at end of period	$	16,632		$	16,585		$	16,632		$	16,585
Net charge-offs to average loans outstanding for period		0.21	%		1.39	%		0.46	%		0.87	%
Allowance at end of period to loans at end of period		1.38	%		1.43	%		1.38	%		1.43	%
Allowance to non-performing loans at end of period		101	%		112	%		101	%		112	%

51

Table 6 - Analysis of non-performing loans for the periods indicated (in thousands)

	September 30, 2013			December 31, 2012
Loans accounted for on a non-accrual basis:
Nonresidential real estate	$	9,743		$	12,138
Residential real estate		5,497			5,243
Construction		605			1,075
Commercial		345			740
Consumer and other		7			48
Total		16,197			19,244
Accruing loans which are contractually past due 90      days or more:
Nonresidential real estate	$	-		$	-
Residential real estate		119			17
Construction		-			-
Commercial		-			-
Consumer and other loans		88			22
Total		207			39
Total non-performing loans	$	16,404		$	19,283
Non-performing loans as a percentage of total loans		1.37	%		1.61	%
Other real estate owned	$	6,141		$	5,396
Trouble debt restructured (TDR) loans:
Performing troubled debt restructured (TDR) loans	$	7,109		$	6,046
Nonperforming trouble debt restructured (TDR) loans (included in nonaccrual loans)		8,854			11,095
Total troubled debt restructured loans	$	15,963		$	17,141

The amount of gross interest income that would have been recorded for nonaccrual loans in the third quarter of 2013 if loans had been current in accordance with their original terms was $154,000 and $155,000 in the third quarter of 2012.

Loans detailed on the credit quality table and the non-performing loan table are the indicators of potential problem loans and there are no other known problems beyond what is disclosed in these tables.

52

NON-INTEREST INCOME

Table 7-Major components of non-interest income (in thousands)

	Three Months ended September 30,				Nine Months ended September 30,
Non-interest income:	2013		2012		2013		2012
Service charges and fees	$	2,829	$	2,325	$	7,541	$	6,767
Net securities gains		-		-		274		203
Mortgage banking income		282		917		1,493		2,092
Trust fee income		846		710		2,548		2,093
Bankcard transaction revenue		1,010		940		3,011		2,794
Company owned life insurance earnings		301		300		873		910
Gain/(loss) on other real estate owned		(201)		(73)		(513)		(201)
Other		989		742		2,531		2,162
Total non-interest income	$	6,056	$	5,861	$	17,758	$	16,820

As illustrated in Table 7, total non-interest income increased $938,000 (6%) from $16,820,000 for the first nine months of 2012 to $17,758,000 for the first nine months of 2013. For the third quarter of 2013, non-interest income increased $195,000 (3%) to $5,861,000 from $6,056,000 for the same period in 2012. Contributing to the increase for the first nine months ended September 30, 2013 was a $455,000 (22%) increase in trust fee income, a $774,000 (11%) increase in service charges and fees and a $217,000 (8%) increase in bankcard transaction revenue, which was partially offset by a $599,000 (29%) decrease in mortgage banking income and $312,000 higher losses on the sale of real estate owned. The increase in service charges and fees was the result of certain new charges implemented in 2013 and increases in the rates on other charges. The decrease in mortgage banking income was the result of lower demand for home mortgage loan refinancing as interest rates have risen significantly since June of 2013. Also, in the first quarter of 2013 the Bank took advantage of the low interest rate environment to sell approximately $5,230,000 of available-for-sale mortgage backed securities for a $274,000 gain. The Bank’s available-for-sale security portfolio is made up of high quality government sponsored agency bonds which are implicitly guaranteed by the Treasury and therefore their credit quality was not negatively affected by the current economic recession.

53

NON-INTEREST EXPENSE

Table 8-Major components of non-interest expense (in thousands)

	Three Months ended September 30,				Nine Months ended September 30,
Non-interest expense:	2013		2012		2013		2012
Salaries and benefits	$	5,969	$	5,909	$	17,870	$	17,084
Occupancy and equipment		1,366		1,316		3,987		3,908
Data processing		533		505		1,620		1,573
Advertising		335		377		1,002		1,146
Electronic banking		398		410		1,235		1,150
Outside servicing fees		225		258		777		788
State bank taxes		615		579		1,805		1,717
Other real estate owned and loan collection		455		279		1,143		1,219
Amortization of intangible assets		151		187		467		583
FDIC insurance		316		266		947		867
Other		1,356		1,713		4,300		4,633
Total non-interest expense	$	11,719	$	11,799	$	35,153	$	34,668

As illustrated in Table 8 above, non-interest expense increased to $35,153,000 in the first nine months of 2013, from $34,668,000 in the same period of 2012, an increase of $485,000 (1%). For the third quarter of 2013, non-interest expense decreased $80,000 (1%) to $11,719,000 compared to $11,799,000 for the same period in 2012. Contributing to the increase in non-interest expense in the first nine months of 2013 were salaries and benefits expense (up $786,000 or 5% from September 30, 2012). The increase in salaries and benefits included $245,000 in higher bonus accruals and $225,000 in higher accruals for pension plan expense. The increased bonus accruals were the result of higher earnings while the higher pension plan expense were the result a lower discount rate applied to future benefits and higher levels of compensation.

INCOME TAX EXPENSE

During the first nine months of 2013, income tax expense increased $458,000 (9%) from $5,170,000 in the first nine months of 2012 to $5,628,000 in the same period of 2013 as a result of higher earnings. During the third quarter of 2013, income tax expense increased $616,000 (38%) from $1,628,000 in the third quarter of 2012 to $2,244,000 in the same period of 2013 as a result of higher earnings. For the third quarter of 2013, the effective tax rate increased to 29.29% compared to 27.95% for the same period of 2012. The effective tax rate increased to 28.68% for the first nine months of 2013 compared to 28.24% for the same period in 2012. The percentage increases in the effective tax rates for both the third quarter and first nine months was the result of higher earnings, as net revenue increases at a higher rate than tax free income the effective tax rate increases.

 

54

LIQUIDITY AND CAPITAL RESOURCES

The Bank achieves liquidity by maintaining an appropriate balance between its sources and uses of funds to assure that sufficient funds are available to meet loan demands and deposit fluctuations. As indicated on the statement of cash flows, cash and cash equivalents have decreased $49,384,000, from $151,832,000 at December 31, 2012 to $102,448,000 at September 30, 2013.

The Company’s total shareholders’ equity increased $4,811,000 from $170,440,000 at December 31, 2012 to $175,251,000 at September 30, 2013. In the first nine months of 2013, the Company paid a cash dividend of $.51 per share totaling $3,828,000 to common shareholders. In September 2012, the Board of Directors voted to change from a semi-annual cash dividend to a quarterly cash dividend, commencing with the fourth quarter of 2012. The change in the shareholders’ equity in 2013 included a $4,760,000 decrease in accumulated other comprehensive income, this decrease was the result of the decrease in the market value of the available-for-sale securities. The market value of these securities decreased as a result of the increase in long term interest rates in June 2013. The market value of these securities changed from an unrealized gain at December 31, 2012 of $5,949,000 to an unrealized loss of $1,262,000 at September 30, 2013.

The Company’s liquidity depends primarily on the dividends paid to it as the sole shareholder of the Bank and the Company’s cash on hand. The Company needs liquidity to meet its financial obligations under certain subordinated debentures issued by the Company in connection with the issuance of trust preferred securities issued by the Company’s unconsolidated subsidiary, for the payment of dividends to common shareholders and for general operating expenses. As mentioned in the overview section, the Company funded the repurchased TARP warrants outstanding with a $2,000,000 note payable. The Board of Governors of the Federal Reserve System and the FDIC have legal requirements, which provide that insured banks and bank holding companies should generally only pay dividends out of current operating earnings. The FDIC prohibits the payment of any dividend by a bank that would constitute an unsafe or unsound practice. Compliance with the minimum capital requirements limits the amounts that the Company and the Bank can pay as dividends. At September 30, 2013, the Bank had capital in excess of the FDIC’s most restrictive minimum capital requirements in an amount over $49,963,000 from which dividends could be paid, subject to the FDIC’s general safety and soundness review and state banking regulations.

For purposes of determining a bank’s deposit insurance assessment, the FDIC has issued regulations that define a "well capitalized" bank as one with a leverage ratio of 5% or more and a total risk-based capital ratio of 10% or more. At September 30, 2013, the Bank's leverage and total risk-based capital ratios were 9.69% and 13.31%, respectively, which exceed the well-capitalized thresholds.

In 2009, the Company filed a universal shelf registration statement on Form S-3 that was declared effective in November 2010. This registration statement permits the Company to engage in offerings of up to $50 million aggregate principal amount of debt securities, common stock, preferred stock, purchase contracts, units, warrants, rights and any combination of the foregoing. The Company utilized the shelf registration to offer common stock in connection with the $28.1 million common stock offering completed in November 2010.  The remaining $21.9 million will expire on November 12, 2013. We may in the future file a new shelf registration statement to conduct subsequent registered debt or equity offerings. 

U.S. Implementation of Basel III. On July 2, 2013, the Federal Reserve approved final rules (the “Final Capital Rules”) that substantially amend the regulatory risk-based capital rules applicable to BKFC and the Bank. The FDIC and the Office of the Comptroller of the Currency (“OCC”) have subsequently approved these rules. The Final Capital Rules consolidate the Notices of Proposed Rulemaking announced in June 2012, with selected changes, resulting in higher risk-based and leverage capital requirements consistent with the Basel Committee on Banking Supervision capital rules, commonly referred to as Basel III. The Final Capital Rules include new risk-based capital and leverage ratios, which will be phased in from 2015 to 2019 as applied to us. The new minimum capital level requirements applicable to BKFC and the Bank under the final rules are: (i) a new common equity Tier 1 capital ratio of 4.5%, (ii) an increased Tier 1 capital ratio of 6% from 4%, (iii) a total capital ratio of 8%, which remains unchanged from current rules, and (iv) a Tier 1 leverage ratio of 4% for all institutions. The Final Capital Rules also establish a “capital conservation buffer” above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital. The implementation of the capital conservation buffer will begin on January 1, 2016 at the 0.625% level and be phased in over a four-year period (increasing by that amount on an annual basis until it reaches 2.5% on January 1, 2019). Under the Final Capital Rules financial institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if their capital level falls below the buffer amount.

The Final Capital Rules implement revisions and clarifications consistent with Basel III regarding the various components of Tier 1 capital, including common equity, unrealized gains and losses, as well as certain instruments that will no longer qualify as Tier 1 capital, some of which will be phased out over time. However, the Final Capital Rules provide that smaller depository institution holding companies with less than $15 billion in total assets as of December 31, 2009 (which includes BKFC) will be able to permanently include non-qualifying instruments that were issued and included in Tier 1 or Tier 2 capital prior to May 19, 2010 in Tier 1 or Tier 2 capital until they redeem such instruments or until the instruments mature. The Final Capital Rules also set forth certain changes for the calculation of risk-weighted assets, which the Bank will be required to utilize beginning January 1, 2015.

The Final Capital Rules also contain revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions, including the Bank, if their capital levels begin to show signs of weakness. These revisions will take effect on January 1, 2015. Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions will be required to meet the following increased capital level requirements in order to qualify as “well capitalized:” (i) a new common equity Tier 1 capital ratio of 6.5%, (ii) a Tier 1 capital ratio of 8%, which increased from 6%, (iii) a total capital ratio of 10%, which remain unchanged from current rules, and (iv) a Tier 1 leverage ratio of 5%, which increased from 4%.

Based on our current capital composition and levels, we believe that we would be in compliance with the requirements as set forth in the Final Capital Rules if they were presently in effect.

55

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

There have been no significant changes to the Bank’s contractual obligations or off-balance sheet arrangements since December 31, 2012. For additional information regarding the Bank’s contractual obligations and off-balance sheet arrangements, refer to the Company’s Form 10-K for the year ending December 31, 2012.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There has been no material change in market risk since December 31, 2012. For information regarding the Company’s market risk, refer to the Company’s Form 10-K for the year ending December 31, 2012. Market risk is discussed further under the heading “Net Interest Income” above.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Disclosure controls and procedures are the Company’s controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be included in the reports filed or submitted under the Exchange Act is accumulated and communicated to Management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision, and with the participation of Management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of the disclosure controls and procedures as of September 30, 2013, and, based upon this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures were effective to ensure that information requiring disclosure is communicated to Management in a timely manner and reported within the timeframe specified by the SEC’s rules and forms.

Changes in Internal Control over Financial Reporting

There was no change in the Company’s internal control over financial reporting that occurred in the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

56

 

The Bank of Kentucky Financial Corporation

PART II OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, the Company and the Bank are involved in litigation incidental to the conduct of business, but neither the Company nor the Bank is presently involved in any lawsuit or proceeding which, in the opinion of management, is likely to have a material adverse effect on the Company.

Item 1A. Risk Factors

There have been no material changes in the Company’s risk factors from those previously disclosed in the Company’s Form 10-K for the year ended December 31, 2012.

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
	None

Item 6. Exhibits

Exhibit Number	Description
31.1	Rule 13a – 14(a) Certification of Robert W. Zapp
31.2	Rule 13a – 14(a) Certification of Martin J. Gerrety
32.1	Section 1350 Certification of Robert W. Zapp
32.2	Section 1350 Certification of Martin J. Gerrety
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase*
101.LAB	XBRL Taxonomy Extension Label Linkbase*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase*
101.DEF	XBRL Taxonomy Extension Definition Linkbase*

*As provided in Rule 406T of Regulation S-T, this interactive data file shall not be deemed “filed” for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability under those sections.

57

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.

The Bank of Kentucky Financial Corporation

Date:	November 6, 2013	/s/ Robert W. Zapp
		Robert W. Zapp
		President and Chief Executive Officer
		(principal executive officer)
Date:	November 6, 2013	/s/ Martin J.Gerrety
		Martin J. Gerrety
		Treasurer and Assistant Secretary
		(principal financial officer)

 

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

CERTIFICATIONS FOR QUARTERLY REPORT ON FORM 10-Q

I, Robert W. Zapp, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of The Bank of Kentucky Financial Corporation;
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.

/s/ Robert W. Zapp

Robert W. Zapp

President and Chief Executive Officer

(principal executive officer)

Date: November 6, 2013

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

CERTIFICATIONS FOR QUARTERLY REPORT ON FORM 10-Q

I, Martin J. Gerrety, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of The Bank of Kentucky Financial Corporation;
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.

/s/ Martin J. Gerrety

Martin J. Gerrety

Treasurer and Assistant Secretary

(principal financial officer)

Date: November 6, 2013

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

In connection with the quarterly report of The Bank of Kentucky Financial Corporation (the "Company") on Form 10-Q for the period ended September 30, 2013, as filed with the Securities and Exchange Commission on the date of this Certification (the "Report"), I, Robert W. Zapp, the President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

/s/ Robert W. Zapp

Robert W. Zapp

President and Chief Executive Officer

(principal executive officer)

Date: November 6, 2013

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

In connection with the quarterly report of The Bank of Kentucky Financial Corporation (the "Company") on Form 10-Q for the period ended September 30, 2013, as filed with the Securities and Exchange Commission on the date of this Certification (the "Report"), I, Martin J. Gerrety, the Treasurer and Assistant Secretary of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief that:

1. The Report complies fully with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

/s/ Martin J. Gerrety

Martin J. Gerrety

Treasurer and Assistant Secretary

(principal financial officer)

Date: November 6, 2013

XML

Loans

9 Months Ended

Sep. 30, 2013

Receivables [Abstract]

Loans

Note 9 - Loans

Loan balances were as follows (in thousands):	September 30,		December 31,
	2013		2012
Commercial	$	221,330	$	201,384
Residential real estate		275,938		278,286
Nonresidential real estate		563,132		573,101
Construction		99,494		104,498
Consumer		15,978		16,447
Municipal obligations		26,898		23,128
Gross loans		1,202,770		1,196,844
Less: Deferred loan origination fees and discount		(1,577)		(1,435)
Allowance for loan losses		(16,632)		(16,568)
Net loans	$	1,184,561	$	1,178,841

The following tables present the activity in the allowance for loan losses for the three months ending September 30, 2013 and 2012, and the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2013 (in thousands):

					Non
			Residential		Residential						Municipal
September 30, 2013	Commercial		Real estate		Real estate		Construction		Consumer		Obligations		Total
Allowance for loan losses
Beginning balance	$	2,583	$	4,214	$	7,280	$	2,061	$	450	$	62	$	16,650
Provision for loan losses		467		486		(180)		(221)		42		6		600
Loans charged off		(5)		(451)		(380)		-		(189)		-		(1,025)
Recoveries		31		155		10		142		69		-		407
Total ending allowance balance	$	3,076	$	4,404	$	6,730	$	1,982	$	372	$	68	$	16,632
Ending allowance balance attributable to loans
Individually evaluated for impairment	$	1,545	$	803	$	1,224	$	1,001	$	-	$	-	$	4,573
Collectively evaluated for impairment		1,531		3,601		5,506		981		372		68		12,059
Total ending allowance balance	$	3,076	$	4,404	$	6,730	$	1,982	$	372	$	68	$	16,632
Loans
Loans individually evaluated for impairment	$	5,152	$	7,106	$	14,522	$	2,801	$	-	$	-	$	29,581
Loans collectively evaluated for impairment		216,178		268,832		548,610		96,693		15,978		26,898		1,173,189
Total ending loans balance	$	221,330	$	275,938	$	563,132	$	99,494	$	15,978	$	26,898	$	1,202,770

					Non
			Residential		Residential						Municipal
September 30, 2012	Commercial		Real estate		Real estate		Construction		Consumer		Obligations		Total
Allowance for loan losses
Beginning balance	$	2,159	$	3,786	$	6,666	$	5,167	$	392	$	176	$	18,346
Provision for loan losses		(215)		2,095		875		(729)		325		(151)		2,200
Loans charged off		(89)		(1,051)		(436)		(2,292)		(371)		-		(4,239)
Recoveries		18		3		183		2		72		-		278
Total ending allowance balance	$	1,873	$	4,833	$	7,288	$	2,148	$	418	$	25	$	16,585

The following tables present the activity in the allowance for loan losses for the nine months ending September 30, 2013 and 2012, and the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2013 and December 31, 2012 (in thousands):

					Non
			Residential		Residential						Municipal
September 30, 2013	Commercial		Real estate		Real estate		Construction		Consumer		Obligations		Total
Allowance for loan losses
Beginning balance	$	2,716	$	4,272	$	6,991	$	1,964	$	584	$	41	$	16,568
Provision for loan losses		874		1,931		1,305		(139)		202		27		4,200
Loans charged off		(582)		(1,998)		(1,639)		(234)		(630)		-		(5,083)
Recoveries		68		199		73		391		216		-		947
Total ending allowance balance	$	3,076	$	4,404	$	6,730	$	1,982	$	372	$	68	$	16,632

					Non
			Residential		Residential						Municipal
September 30, 2012	Commercial		Real estate		Real estate		Construction		Consumer		Obligations		Total
Allowance for loan losses
Beginning balance	$	3,207	$	2,591	$	7,614	$	4,701	$	162	$	13	$	18,288
Provision for loan losses		(892)		3,782		1,095		977		726		12		5,700
Loans charged off		(461)		(1,573)		(1,609)		(3,538)		(696)		-		(7,877)
Recoveries		19		33		188		8		226		-		474
Total ending allowance balance	$	1,873	$	4,833	$	7,288	$	2,148	$	418	$	25	$	16,585

					Non
			Residential		Residential						Municipal
December 31, 2012	Commercial		Real estate		Real estate		Construction		Consumer		Obligations		Total
Ending allowance balance attributable to loans
Individually evaluated for impairment	$	1,266	$	970	$	2,540	$	1,369	$	120	$	-	$	6,265
Collectively evaluated for impairment		1,450		3,302		4,451		595		464		41		10,303
	$	2,716	$	4,272	$	6,991	$	1,964	$	584	$	41	$	16,568
Loans
Loans individually evaluated for impairment	$	1,840	$	8,666	$	18,076	$	5,154	$	120	$	-	$	33,856
Loans collectively evaluated for impairment		199,544		269,620		555,025		99,344		16,327		23,128		1,162,988
Total ending loans balance	$	201,384	$	278,286	$	573,101	$	104,498	$	16,447	$	23,128	$	1,196,844

The following table presents individually impaired loans by class of loans as of and for the three months ended September 30, 2013 (in thousands):

	Unpaid				Allowance for		Average		Interest
	Principal		Recorded		Loan Losses		Recorded		Income		Interest
	Balance		Investment		Allocated		Investment		Recognized		Received
With no related allowance recorded
Commercial	$	111	$	111	$	-	$	141	$	-	$	-
Residential real estate
Home equity lines of credit		-		-		-		17		-		-
Multifamily properties		1,319		969		-		485		-		-
Other		1,163		1,052		-		1,642		-		-
Nonresidential real estate
Owner occupied properties		1,293		1,165		-		772		-		-
Non owner occupied properties		4,534		4,296		-		4,428		-		-
Construction		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
With an allowance recorded
Commercial		5,041		5,041		1,545		3,784		57		52
Residential real estate
Home equity lines of credit		388		373		155		356		3		3
Multifamily properties		-		-		-		485		0		0
Other		5,188		4,712		648		4,671		20		19
Nonresidential real estate
Owner occupied properties		7,479		6,350		1,014		7,749		2		2
Non owner occupied properties		3,264		2,711		210		2,652		34		34
Construction		3,004		2,801		1,001		2,879		28		28
Consumer		-		-		-		-		-		-
Total	$	32,784	$	29,581	$	4,573	$	30,061	$	144	$	138

The following table presents individually impaired loans by class of loans as of and for the three months ended September 30, 2012 (in thousands):

	Unpaid				Allowance for		Average		Interest
	Principal		Recorded		Loan Losses		Recorded		Income		Interest
	Balance		Investment		Allocated		Investment		Recognized		Received
With no related allowance recorded
Commercial	$	30	$	30	$	-	$	170	$	-	$	-
Residential real estate
Home equity lines of credit		50		50		-		50		-		-
Multifamily properties		379		48		-		24		-		-
Other		2,869		2,626		-		2,336		-		-
Nonresidential real estate
Owner occupied properties		802		792		-		490		-		-
Non owner occupied properties		6,206		5,701		-		3,797		-		-
Construction		809		509		-		432		-		-
With an allowance recorded
Commercial		1,088		1,088		317		823		4		4
Residential real estate
Home equity lines of credit		1,488		1,488		1,341		813		12		12
Multifamily properties		1,324		1,324		243		1,554		11		11
Other		3,109		2,964		145		3,309		31		24
Nonresidential real estate
Owner occupied properties		8,544		8,543		2,651		8,774		81		81
Non owner occupied properties		4,595		4,074		342		6,449		34		34
Construction		6,387		5,266		1,215		6,494		45		45
Total	$	37,680	$	34,503	$	6,254	$	35,515	$	218	$	211

The following table presents individually impaired loans by class of loans as of and for the nine months ended September 30, 2013 (in thousands):

	Unpaid				Allowance for		Average		Interest
	Principal		Recorded		Loan Losses		Recorded		Income		Interest
	Balance		Investment		Allocated		Investment		Recognized		Received
With no related allowance recorded
Commercial	$	111	$	111	$	-	$	138	$	-	$	-
Residential real estate
Home equity lines of credit		-		-		-		20		-		-
Multifamily properties		1,319		969		-		485		-		-
Other		1,163		1,052		-		1,902		-		-
Nonresidential real estate
Owner occupied properties		1,293		1,165		-		2,450		-		-
Non owner occupied properties		4,534		4,296		-		4,359		-		-
Construction		-		-		-		514		-		-
Consumer		-		-		-		-		-		-
With an allowance recorded
Commercial		5,041		5,041		1,545		2,623		91		80
Residential real estate
Home equity lines of credit		388		373		155		475		9		9
Multifamily properties		-		-		-		543		8		8
Other		5,188		4,712		648		5,177		61		58
Nonresidential real estate
Owner occupied properties		7,479		6,350		1,014		6,204		13		10
Non owner occupied properties		3,264		2,711		210		3,734		109		102
Construction		3,004		2,801		1,001		3,421		93		76
Consumer		-		-		-		20		-		-
Total	$	32,784	$	29,581	$	4,573	$	32,065	$	384	$	343

The following table presents individually impaired loans by class of loans as of, and for the nine months ended September 30, 2012 (in thousands):

	Average Recorded Investment		Interest Income Recognized		Interest Received
With no related allowance recorded
Commercial	$	263	$	-	$	-
Residential real estate
Home equity lines of credit		50		-		-
Multifamily properties		273		-		-
Other		2,094		-		-
Nonresidential real estate
Owner occupied properties		698		-		-
Non owner occupied properties		2,848		-		-
Construction		256		-		-
With an allowance recorded
Commercial		950		7		5
Residential real estate
Home equity lines of credit		339		12		12
Multifamily properties		815		22		22
Other		3,557		76		64
Nonresidential real estate
Owner occupied properties		9,081		239		237
Non owner occupied properties		7,406		143		106
Construction		8,017		163		155
Total	$	36,647	$	662	$	601

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2012 (in thousands):

	Unpaid				Allowance for
	Principal		Recorded		Loan Losses
	Balance		Investment		Allocated
With no related allowance recorded
Commercial	$	28	$	28	$	-
Residential real estate
Home equity lines of credit		50		50		-
Multifamily properties		-		-		-
Other		1,922		1,679		-
Nonresidential real estate
Owner occupied properties		-		-		-
Non owner occupied properties		5,056		4,551		-
Construction		-		-		-
Consumer		-		-		-
With an allowance recorded
Commercial		1,812		1,812		1,266
Residential real estate
Home equity lines of credit		766		566		212
Multifamily properties		1,320		1,320		248
Other		5,196		5,051		510
Nonresidential real estate
Owner occupied properties		9,142		8,190		1,644
Non owner occupied properties		5,876		5,335		896
Construction		6,274		5,154		1,369
Consumer		120		120		120
Total	$	37,562	$	33,856	$	6,265

The following table presents the aging of the recorded investment in past due loans by class of loans as of September 30, 2013 and December 31, 2012 (in thousands):

	Loans		Loans over
	30-90 days		90 days				Loans not
	past due		past due		Nonaccrual		past due		Total
September 30, 2013
Commercial	$	299	$	-	$	345	$	220,686	$	221,330
Residential real estate
Home equity lines of credit		388		5		393		97,327		98,113
Multifamily properties		-		-		-		52,901		52,901
Other residential real estate		1,222		114		5,104		118,484		124,924
Nonresidential real estate
Owner occupied properties		1,204		-		6,851		275,079		283,134
Non owner occupied properties		461		-		2,892		276,645		279,998
Construction		14		-		605		98,875		99,494
Consumer
Credit card balances		17		88		-		6,904		7,009
Other consumer		1		-		7		8,961		8,969
Municipal obligations		-		-		-		26,898		26,898
Total	$	3,606	$	207	$	16,197	$	1,182,760	$	1,202,770

	Loans		Loans over
	30-90 days		90 days				Loans not
	past due		past due		Nonaccrual		past due		Total
December 31, 2012
Commercial	$	1,668	$	-	$	740	$	198,976	$	201,384
Residential real estate
Home equity lines of credit		476		-		775		98,806		100,057
Multifamily properties		-		-		-		48,558		48,558
Other residential real estate		6,615		17		4,468		118,571		129,671
Nonresidential real estate
Owner occupied properties		2,809		-		7,000		278,362		288,171
Non owner occupied properties		2,788		-		5,138		277,004		284,930
Construction		738		-		1,075		102,685		104,498
Consumer
Credit card balances		32		22		-		6,905		6,959
Other consumer		5		-		48		9,435		9,488
Municipal obligations		-		-		-		23,128		23,128
Total	$	15,131	$	39	$	19,244	$	1,162,430	$	1,196,844

Troubled Debt Restructurings (dollars in thousands):

The Company allocated $1,737 and $2,837 of specific reserves to customers whose loan terms had been modified in troubled debt restructurings as of September 30, 2013 and September 30, 2012, respectively. Troubled debt restructurings totaled $15,963 and $17,130 as of September 30, 2013 and September 30, 2012, respectively. The Company had not committed to lend additional amounts as of September 30, 2013 and September 30, 2012 to customers with outstanding loans that were classified as troubled debt restructurings.

Modifications involving a reduction of the stated interest rate of the loan were for periods up to three years. Modifications involving an extension of the maturity date were for periods ranging from eight to twelve months.

The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ended September 30, 2013 and 2012 (dollars in thousands):

	2013						2012
	Number Of Loans		Pre- Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number Of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial		1	$	19	$	19		1	$	32	$	30
Residential real estate
Home equity lines of credit		-		-		-		-		-		-
Multifamily properties		-		-		-		-		-		-
Other residential real estate		1		21		20		-		-		-
Nonresidential real estate
Owner occupied properties		-		-		-		-		-		-
Non owner occupied properties		-		-		-		-		-		-
Construction		-		-		-		-		-		-
Consumer
Credit card balances		-		-		-		-		-		-
Other consumer		-		-		-		-		-		-
Municipal obligations		-		-		-		-		-		-
Total		2	$	40	$	39		1	$	32	$	30

The two restructured notes added during the third quarter of 2013 for $39 were added as performing troubled debt restructured loans. The one restructured note added in the third quarter 2012 for a total of $30 was added as performing troubled debt restructured loans.

The troubled debt restructurings described above did not have an effect on the allowance for loan losses and resulted in no charge-offs during the third quarters ending September 30, 2013 and 2012. 

The following table presents loans by class modified as troubled debt restructurings that occurred during nine months ended September 30, 2013 and 2012 (dollars in thousands):

	2013						2012
	Number Of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number Of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial		3	$	190	$	128		2	$	190	$	184
Residential real estate
Home equity lines of credit		-		-		-		-		-		-
Multifamily properties		1		970		969		1		485		48
Other residential real estate		2		512		511		1		187		186
Nonresidential real estate
Owner occupied properties		-		-		-		1		154		154
Non owner occupied properties		2		970		938		-		-		-
Construction		-		-		-		5		3,205		2,958
Consumer
Credit card balances		-		-		-		-		-		-
Other consumer		-		-		-		-		-		-
Municipal obligations		-		-		-		-		-		-
Total		8	$	2,642	$	2,546		10	$	4,221	$	3,530

The eight restructured notes added during the first nine months of 2013 for $2,546 were added as performing troubled debt restructured loans. The 10 restructured notes added in the first nine months of 2012 for a total of $3,530 were added as performing troubled debt restructured loans.

The troubled debt restructurings described above increased the allowance for loan losses by $0 and resulted in charge-offs of $350 during the nine months ending September 30, 2013 and increased the allowance for loan losses by $1,115 and resulted in charge-offs of $1,262 for the nine months ending September 30, 2012.

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the third quarter ending September 30, 2013.

(dollars in thousands)

Troubled Debt Restructurings
That Subsequently Defaulted:	Number of Loans		Recorded Investment
Commercial		1	$	15
Residential real estate
Home equity lines of credit
Multifamily properties		-		-
Other residential real estate		-		-
Nonresidential real estate
Owner occupied properties		-		-
Non owner occupied properties		-		-
Construction		-		-
Consumer
Credit card balances
Other consumer
Municipal obligations		-		-
Total		1	$	15

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification for the nine months ending September 30, 2013.

(dollars in thousands)

Troubled Debt Restructurings
That Subsequently Defaulted:	Number of Loans		Recorded Investment
Commercial		3	$	180
Residential real estate
Home equity lines of credit
Multifamily properties		1		970
Other residential real estate		-		-
Nonresidential real estate
Owner occupied properties		1		150
Non owner occupied properties		3		3,136
Construction		4		1,542
Consumer
Credit card balances
Other consumer
Municipal obligations		-		-
Total		12	$	5,978

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

The troubled debt restructurings that subsequently defaulted described above increased the allowance for loan losses by $31 and resulted in charge-offs of $0 during the third quarter ending September 30, 2013 and resulting in charge-offs of $553 for the nine months ending September 30, 2013.

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the third quarter ending September 30, 2012.

(dollars in thousands)

Troubled Debt Restructurings
That Subsequently Defaulted:	Number of Loans		Recorded Investment
Commercial		-	$	0
Residential real estate
Home equity lines of credit		-		-
Multifamily properties		-		-
Other residential real estate		-		-
Nonresidential real estate
Owner occupied properties		-		-
Non owner occupied properties		-		-
Construction		1		659
Consumer
Credit card balances		-		-
Other consumer		-		-
Municipal obligations		-		-
Total		1	$	659

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the nine months ending September 30, 2012.

(dollars in thousands)

Troubled Debt Restructurings
That Subsequently Defaulted:	Number of Loans		Recorded Investment
Commercial		1	$	154
Residential real estate
Home equity lines of credit
Multifamily properties		1		48
Other residential real estate		-		-
Nonresidential real estate
Owner occupied properties		-		-
Non owner occupied properties		2		2,954
Construction		3		3,625
Consumer
Credit card balances		-		-
Other consumer		-		-
Municipal obligations		-		-
Total		7	$	6,781

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

The troubled debt restructurings that subsequently defaulted described above increased the allowance for loan losses by $386 and resulted in charge-offs of $0 during the third quarter ending September 30, 2012 and resulting in charge-offs of $1,112 for the nine months ending September 30, 2012.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, including: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes loans with an outstanding balance greater than $100,000 and non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a quarterly basis. Loans with balances below $100,000 and homogenous loans, such as residential real estate and consumer loans, are analyzed for credit quality based on aging status, which was previously presented. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):

			Special
	Pass		Mention		Substandard		Doubtful		Not Rated(1)		Total
September 30, 2013
Commercial	$	208,695	$	4,551	$	8,084	$	-	$	-	$	221,330
Residential real estate
Home equity lines of credit		11,944		881		1,149		-		84,139		98,113
Multifamily properties		50,447		-		2,454		-		-		52,901
Other residential real estate		34,698		4,241		8,285		-		77,700		124,924
Nonresidential real estate
Owner occupied properties		254,588		6,196		22,350		-		-		283,134
Non owner occupied properties		266,407		5,057		8,534		-		-		279,998
Construction		87,432		8,766		3,296		-		-		99,494
Consumer
Credit card balances		-		-		-		-		7,009		7,009
Other consumer		-		-		6		-		8,963		8,969
Municipal obligations		26,898		-		-		-		-		26,898
Total	$	941,109	$	29,692	$	54,158	$	-	$	177,811	$	1,202,770

(1) Not rated loans represent the homogenous pools risk category.

			Special
	Pass		Mention		Substandard		Doubtful		Not Rated(1)		Total
December 31, 2012
Commercial	$	188,686	$	8,469	$	4,229	$	-	$	-	$	201,384
Residential real estate
Home equity lines of credit		10,840		999		1,388		-		86,830		100,057
Multifamily properties		45,329		99		3,130		-		-		48,558
Other residential real estate		35,922		1,146		10,477		-		82,126		129,671
Nonresidential real estate
Owner occupied properties		258,816		13,648		15,707		-		-		288,171
Non owner occupied properties		264,442		8,098		12,390		-		-		284,930
Construction		96,154		2,264		6,080		-		-		104,498
Consumer
Credit card balances		-		-		-		-		6,959		6,959
Other consumer		-		-		141		-		9,347		9,488
Municipal obligations		23,128		-		-		-		-		23,128
Total	$	923,317	$	34,723	$	53,542	$	-	$	185,262	$	1,196,844

(1) Not rated loans represent the homogenous pools risk category. 

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
INTEREST INCOME
Loans, including related fees	$ 13,325	$ 13,771	$ 39,883	$ 41,363
Securities and other	1,709	1,662	4,897	5,419
Total interest income	15,034	15,433	44,780	46,782
INTEREST EXPENSE
Deposits	846	1,214	2,824	4,128
Borrowings	266	257	743	801
Total interest expense	1,112	1,471	3,567	4,929
Net interest income	13,922	13,962	41,213	41,853
Provision for loan losses	600	2,200	4,200	5,700
Net interest income after provision for loan losses	13,322	11,762	37,013	36,153
NON-INTEREST INCOME
Service charges and fees	2,829	2,325	7,541	6,767
Mortgage banking income	282	917	1,493	2,092
Net securities gains	0	0	274	203
Company owned life insurance earnings	301	300	873	910
Bankcard transaction revenue	1,010	940	3,011	2,794
Trust fee income	846	710	2,548	2,093
Other	788	669	2,018	1,961
Total non-interest income	6,056	5,861	17,758	16,820
NON-INTEREST EXPENSE
Salaries and benefits	5,969	5,909	17,870	17,084
Occupancy and equipment	1,366	1,316	3,987	3,908
Data processing	533	505	1,620	1,573
Advertising	335	377	1,002	1,146
Other	3,516	3,692	10,674	10,957
Total non-interest expense	11,719	11,799	35,153	34,668
INCOME BEFORE INCOME TAXES	7,659	5,824	19,618	18,305
Less: income taxes	2,244	1,628	5,628	5,170
Net income	$ 5,415	$ 4,196	$ 13,990	$ 13,135
Net income per common share:
Earnings per share, basic	$ 0.72	$ 0.56	$ 1.87	$ 1.76
Earnings per share, diluted	$ 0.72	$ 0.56	$ 1.85	$ 1.74

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General

9 Months Ended

Sep. 30, 2013

General [Abstract]

General

Note 2 - General:

These financial statements were prepared in accordance with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X and, therefore, do not include all of the disclosures necessary for a complete presentation of financial position, results of operations and cash flows in conformity with U.S. generally accepted accounting principles. Except for required accounting changes, these financial statements have been prepared on a basis consistent with the annual financial statements and include, in the opinion of management, all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results of operations and financial position at the end of and for the periods presented. These financial statements and notes should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto as set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for loan losses and the fair values of financial instruments, in particular, are subject to change.

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Fair Value (Tables)

9 Months Ended

Sep. 30, 2013

Assets and Liabilities Measured at Fair Value on Recurring Basis

Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):

			Fair Value Measurements at
			September 30, 2013 Using:
					Significant
			Quoted Prices in		Other		Significant
	Total		Active Markets for		Observable		Unobservable
	September 30,		Identical Assets		Inputs		Inputs
	2013		(Level 1)		(Level 2)		(Level 3)
Assets
Investment securities    available-for-sale
U.S. government sponsored entities     and agencies	$	119,029	$	-	$	119,029	$	-
U.S. government agency     mortgage backed		190,534		-		190,534		-
Corporate		995		-		-		995
Derivatives		1,760		-		1,760		-
Total	$	312,318	$	-	$	311,323	$	995
Liabilities
Derivatives	$	1,760	$	-	$	1,760	$	-
Total	$	1,760	$	-	$	1,760	$	-

			Fair Value Measurements at
			December 31, 2012 Using:
					Significant
				Quoted Prices in	Other	Significant
	Total			Active Markets for	Observable	Unobservable
	December 31,			Identical Assets	Inputs	Inputs
	2012			(Level 1)	(Level 2)	(Level 3)
Assets
Investment securities available-for-sale
U.S. government sponsored entities and agencies	$	128,477		-	128,477	-
U.S. government agency mortgage backed		184,907		-	184,907	-
Corporate		1,060		-	-	1,060
Derivatives		1,926		-	1,926	-
Total	$	316,370		-	315,310	1,060
Liabilities
Derivatives	$	1,926		-	1,926	-
Total	$	1,926		-	1,926	-

Reconciliation of Assets Measured at Fair Value on Recurring Basis Using Significant Unobservable Inputs Level Three

The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30 (in thousands):

Corporate Securities

	Three months ended		Three months ended
	September 30, 2013		September 30, 2012
Balance of recurring Level 3 assets at January 1	$	995	$	1,060
Total gains or losses for the period:
Included in earnings		-		-
Included in other comprehensive income		-		-
Purchases		-		-
Sales		-		-
Issuances		-		-
Settlements		-		-
Transfers into Level 3		-		-
Transfers out of Level 3		-		-
Balance of recurring Level 3 assets at September 30	$	995	$	1,060

 

	Nine months ended		Nine months ended
	September 30, 2013		September 30, 2012
Balance of recurring Level 3 assets at January 1	$	1,060	$	1,060
Total gains or losses for the period:
Included in earnings		-		-
Included in other comprehensive income		-		-
Purchases		-		-
Sales		-		-
Issuances		-		-
Settlements		65		-
Transfers into Level 3		-		-
Transfers out of Level 3		-		-
Balance of recurring Level 3 assets at September 30	$	995	$	1,060

Quantitative Information About Recurring Level 3 Fair Value Measurements

The following table presents quantitative information about recurring Level 3 fair value measurements at September 30, 2013(in thousands):

			Valuation
	Fair value		Technique(s)	Unobservable Input(s)	Value
Corporate	$	995	Discounted cash flow	Probability of default	0	%

Assets And Liabilities Measured At Fair Value On a Non-recurring Basis

Assets and liabilities measured at fair value on a non-recurring basis are summarized below:

			Fair Value Measurements at
			September 30, 2013 Using:
					Significant
			Quoted Prices in		Other		Significant
	Total		Active Markets for		Observable		Unobservable
	September 30,		Identical Assets		Inputs		Inputs
	2013		(Level 1)		(Level 2)		(Level 3)
Assets
Impaired loans
Commercial	$	3,393	$		$	-	$	3,393
Nonresidential real estate		-
Owner occupied properties		5,157		-		-		5,157
Non owner occupied properties		869		-		-		869
Residential real estate
Home equity lines of credit		218		-		-		218
Multifamily properties		-		-		-		-
Other		4,064		-		-		4,064
Construction		796		-		-		796
Other real estate owned				-				-
Residential		195						195
Non-residential		3,250		-		-		3,250
Total	$	17,942	$	-	$	-	$	17,942

			Fair Value Measurements at
			December 31, 2012 Using:
					Significant
			Quoted Prices in		Other		Significant
	Total		Active Markets for		Observable		Unobservable
	December 31,		Identical Assets		Inputs		Inputs
	2012		(Level 1)		(Level 2)		(Level 3)
Assets
Impaired loans
Commercial	$	546	$	-	$	-	$	546
Nonresidential real estate		-
Owner occupied properties		6,346		-		-		6,346
Non owner occupied properties		2,788		-		-		2,788
Residential real estate
Home equity lines of credit		354		-		-		354
Multifamily properties		1,072		-		-		1,072
Other		4,541		-		-		4,541
Construction		2,657		-		-		2,657
Other real estate owned
Residential		396		-		-		396
Non-residential		2,683		-		-		2,683
Total	$	21,383	$	-	$	-	$	21,383

Carrying Amounts and Estimated Fair Values of Financial Instruments

The carrying amounts and estimated fair values of financial instruments at September 30, 2013 and December 31, 2012 are as follows (in thousands):

			Fair Value Measurements at
			September 30, 2013 Using:
	Carrying Value		Level 1		Level 2		Level 3		Total
(Dollars in thousands)
Financial assets
Cash and cash equivalents	$	102,448	$	102,448	$	-	$	-	$	102,448
Interest-bearing deposits with banks		250		250		-		-		250
Securities available-for-sale		310,558		-		309,563		995		310,558
Securities held-to-maturity		78,371		-		77,739		-		77,739
Federal Home Loan Bank stock		5,099		N/A		N/A		N/A		N/A
Loans held for sale		2,435		-		2,435		-		2,435
Loans, net		1,184,561		-		-		1,192,268		1,192,268
Accrued interest receivable		4,156		-		1,397		2,759		4,156
Derivative assets		1,760		-		1,760		-		1,760
Financial liabilities
Deposits	$	(1,524,938)	$	(1,212,541)	$	(313,646)	$	-	$	(1,526,187)
Short-term borrowings		(32,167)		-		(32,167)		-		(32,167)
Notes payable		(50,695)		-		(26,160)		(17,414)		(43,574)
Accrued interest payable		(717)		-		(705)		(12)		(717)
Standby letters of credit		(233)		-		-		(233)		(233)
Derivative liabilities		(1,760)		-		(1,760)		-		(1,760)

			Fair Value Measurements at
			December 31, 2012 Using:
	Carrying Value		Level 1		Level 2		Level 3		Total
(Dollars in thousands)
Financial assets
Cash and cash equivalents	$	151,832	$	151,832	$	-	$	-	$	151,832
Interest-bearing deposits with     banks		250		250		-		-		250
Securities available-for-sale		314,444		-		313,384		1,060		314,444
Securities held-to-maturity		66,843		-		68,504		-		68,504
Federal Home Loan Bank stock		5,099		N/A		N/A		N/A		N/A
Loans held for sale		16,324		-		16,324		-		16,324
Loans, net		1,178,841		-		-		1,182,273		1,182,273
Accrued interest receivable		4,259		-		1,447		2,812		4,259
Derivative assets		1,926				1,926		-		1,926
Financial liabilities
Deposits	$	(1,570,007)	$	(1,210,925)	$	(360,671)	$	-	$	(1,571,596)
Short-term borrowings		(41,408)		-		(41,408)		-		(41,408)
Notes payable		(48,715)		-		(22,392)		(17,192)		(39,584)
Accrued interest payable		(1,031)		-		(1,018)		(13)		(1,031)
Standby letters of credit		(271)		-		-		(271)		(271)
Derivative liabilities		(1,926)		-		(1,926)		-		(1,926)

Impaired Loans [Member]

Quantitative Information About Recurring Level 3 Fair Value Measurements

The following table presents quantitative information about recurring Level 3 fair value measurements at September 30, 2013 (in thousands):

	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Discount Range (Avg discount)
Assets
Impaired Loans:
Commercial	$	3,393	Cost, sales, income approach	Adjustment for comparable properties or equipment, market conditions	0-95% (45%)
Nonresidential real estate
Owner occupied properties		5,157	Cost, sales, income approach	Adjustment for comparable properties, market conditions	0-90% (10%)
Non owner occupied properties		869	Cost, sales, income approach	Adjustment for comparable properties, market conditions	80-100% (4%)
Residential real estate
Home equity lines of credit		218	Cost, sales, income approach	Adjustment for comparable properties, market conditions	85-95% (14%)
Other		4,064	Cost, sales, income approach	Adjustment for comparable properties, market conditions	0-100% (9%)
Construction		796	Cost, sales, income approach	Adjustment for comparable properties, market conditions	0-100% (21%)
Other real estate owned
Residential		195	Cost, sales, income approach	Adjustment for comparable properties, market conditions	0-0% (0%)
Non-residential		3,268	Cost, sales, income approach	Adjustment for comparable properties, market conditions	0-0% (0%)
Total	$	17,960

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Fair Value

9 Months Ended

Sep. 30, 2013

Fair Value Disclosures [Abstract]

Fair Value

Note 10 –Fair Value:

Accounting guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Investment Securities: The fair values of securities available-for-sale are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). One corporate security is valued using Level 3 inputs as there is no readily observable market activity. Management determines the value of this security based on expected cash flows, the credit quality of the security and current market interest rates.

Derivatives: The Bank’s derivative instruments consist of over-the-counter interest-rate swaps that trade in liquid markets. The fair value of the derivative instruments is primarily measured by obtaining pricing from broker-dealers recognized to be market participants. The pricing is derived from market observable inputs that can generally be verified and do not typically involve significant judgment by the Bank. This valuation method is classified as Level 2 in the fair value hierarchy.

Impaired Loans: At the time a loan is considered impaired, it is recorded at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses. For collateral dependent loans, fair value is commonly 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 independent 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. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Other Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at the lower of cost or fair value less estimated costs to sell. Fair value is commonly 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 independent 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.

Loans Held For Sale: Loans held for sale are carried at the lower of cost or fair value, which is evaluated on a pool-level basis. The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable market data, such as outstanding commitments from third party investors (Level 2).

Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):

			Fair Value Measurements at
			September 30, 2013 Using:
					Significant
			Quoted Prices in		Other		Significant
	Total		Active Markets for		Observable		Unobservable
	September 30,		Identical Assets		Inputs		Inputs
	2013		(Level 1)		(Level 2)		(Level 3)
Assets
Investment securities    available-for-sale
U.S. government sponsored entities     and agencies	$	119,029	$	-	$	119,029	$	-
U.S. government agency     mortgage backed		190,534		-		190,534		-
Corporate		995		-		-		995
Derivatives		1,760		-		1,760		-
Total	$	312,318	$	-	$	311,323	$	995
Liabilities
Derivatives	$	1,760	$	-	$	1,760	$	-
Total	$	1,760	$	-	$	1,760	$	-

			Fair Value Measurements at
			December 31, 2012 Using:
					Significant
				Quoted Prices in	Other	Significant
	Total			Active Markets for	Observable	Unobservable
	December 31,			Identical Assets	Inputs	Inputs
	2012			(Level 1)	(Level 2)	(Level 3)
Assets
Investment securities available-for-sale
U.S. government sponsored entities and agencies	$	128,477		-	128,477	-
U.S. government agency mortgage backed		184,907		-	184,907	-
Corporate		1,060		-	-	1,060
Derivatives		1,926		-	1,926	-
Total	$	316,370		-	315,310	1,060
Liabilities
Derivatives	$	1,926		-	1,926	-
Total	$	1,926		-	1,926	-

There were no transfers between Level 1 and Level 2 during 2013 or 2012.

There were no gains or losses for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the quarter ended September 30, 2013.

There were no changes in unrealized gains and losses recorded in earnings for the quarter ended September 30, 2013 for Level 3 assets and liabilities that are still held at September 30, 2013.

The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30 (in thousands):

Corporate Securities

	Three months ended		Three months ended
	September 30, 2013		September 30, 2012
Balance of recurring Level 3 assets at January 1	$	995	$	1,060
Total gains or losses for the period:
Included in earnings		-		-
Included in other comprehensive income		-		-
Purchases		-		-
Sales		-		-
Issuances		-		-
Settlements		-		-
Transfers into Level 3		-		-
Transfers out of Level 3		-		-
Balance of recurring Level 3 assets at September 30	$	995	$	1,060

 

	Nine months ended		Nine months ended
	September 30, 2013		September 30, 2012
Balance of recurring Level 3 assets at January 1	$	1,060	$	1,060
Total gains or losses for the period:
Included in earnings		-		-
Included in other comprehensive income		-		-
Purchases		-		-
Sales		-		-
Issuances		-		-
Settlements		65		-
Transfers into Level 3		-		-
Transfers out of Level 3		-		-
Balance of recurring Level 3 assets at September 30	$	995	$	1,060

The following table presents quantitative information about recurring Level 3 fair value measurements at September 30, 2013(in thousands):

			Valuation
	Fair value		Technique(s)	Unobservable Input(s)	Value
Corporate	$	995	Discounted cash flow	Probability of default	0	%

The interest rate on this security is based on interest rates paid for securities with similar credit characteristics, but the probability of default is determined through a credit quality review rather than formal ratings or other observable inputs. The interest rate adjusts to reflect current market conditions of highly rated investments, if probability of default changed significantly, the interest rate would adjust accordingly and the fair value would be updated. Management reviews this interest rate and the security’s credit quality quarterly and a market value adjustment is made if necessary pursuant to this review.

Assets and Liabilities Measured on a Non-Recurring Basis

(Dollars in thousands)

Assets and liabilities measured at fair value on a non-recurring basis are summarized below:

			Fair Value Measurements at
			September 30, 2013 Using:
					Significant
			Quoted Prices in		Other		Significant
	Total		Active Markets for		Observable		Unobservable
	September 30,		Identical Assets		Inputs		Inputs
	2013		(Level 1)		(Level 2)		(Level 3)
Assets
Impaired loans
Commercial	$	3,393	$		$	-	$	3,393
Nonresidential real estate		-
Owner occupied properties		5,157		-		-		5,157
Non owner occupied properties		869		-		-		869
Residential real estate
Home equity lines of credit		218		-		-		218
Multifamily properties		-		-		-		-
Other		4,064		-		-		4,064
Construction		796		-		-		796
Other real estate owned				-				-
Residential		195						195
Non-residential		3,250		-		-		3,250
Total	$	17,942	$	-	$	-	$	17,942

			Fair Value Measurements at
			December 31, 2012 Using:
					Significant
			Quoted Prices in		Other		Significant
	Total		Active Markets for		Observable		Unobservable
	December 31,		Identical Assets		Inputs		Inputs
	2012		(Level 1)		(Level 2)		(Level 3)
Assets
Impaired loans
Commercial	$	546	$	-	$	-	$	546
Nonresidential real estate		-
Owner occupied properties		6,346		-		-		6,346
Non owner occupied properties		2,788		-		-		2,788
Residential real estate
Home equity lines of credit		354		-		-		354
Multifamily properties		1,072		-		-		1,072
Other		4,541		-		-		4,541
Construction		2,657		-		-		2,657
Other real estate owned
Residential		396		-		-		396
Non-residential		2,683		-		-		2,683
Total	$	21,383	$	-	$	-	$	21,383

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a gross carrying amount of $19,007 with a valuation allowance of $4,511, resulting in a decrease in provision for loan losses of $150 in the third quarter ending September 2013 and $1,692 for the first nine months of 2013. As of December 31, 2012, impaired loans had a gross carrying amount of $24,560, with a valuation allowance of $6,265, resulting in a decrease in provision for loan losses of $1,178.

Other real estate owned, measured at fair value less costs to sell, had a net carrying amount of $3,445, which is made up of the outstanding balance of $4,126, net of a valuation allowance of $681 at September 30, 2013, resulting in a write-down of $681, for the nine months ended September 30, 2013 and $228 for the quarter ended September 30, 2013. At December 31, 2012, other real estate owned had a net carrying amount of $3,079, made up of the outstanding balance of $3,728, net of a valuation allowance of $649, resulting in a write-down of $369 for the year ended December 31, 2012.

Values for collateral dependent loans and other real estate owned are generally based on appraisals obtained from licensed real estate appraisers and in certain circumstances consideration of offers obtained to purchase properties prior to foreclosure or other factors management deems relevant to arrive at a representative fair value.  Appraisals for commercial real estate generally use three methods to derive value: cost, sales or market comparison and income approach.  The cost method bases value on the cost to replace the current property.  The market comparison approach evaluates the sales price of similar properties in the same market area.  The income approach considers net operating income generated by the property and an investor’s required return.  The final fair value is based on a reconciliation of these three approaches.

The following table presents quantitative information about recurring Level 3 fair value measurements at September 30, 2013 (in thousands):

	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Discount Range (Avg discount)
Assets
Impaired Loans:
Commercial	$	3,393	Cost, sales, income approach	Adjustment for comparable properties or equipment, market conditions	0-95% (45%)
Nonresidential real estate
Owner occupied properties		5,157	Cost, sales, income approach	Adjustment for comparable properties, market conditions	0-90% (10%)
Non owner occupied properties		869	Cost, sales, income approach	Adjustment for comparable properties, market conditions	80-100% (4%)
Residential real estate
Home equity lines of credit		218	Cost, sales, income approach	Adjustment for comparable properties, market conditions	85-95% (14%)
Other		4,064	Cost, sales, income approach	Adjustment for comparable properties, market conditions	0-100% (9%)
Construction		796	Cost, sales, income approach	Adjustment for comparable properties, market conditions	0-100% (21%)
Other real estate owned
Residential		195	Cost, sales, income approach	Adjustment for comparable properties, market conditions	0-0% (0%)
Non-residential		3,268	Cost, sales, income approach	Adjustment for comparable properties, market conditions	0-0% (0%)
Total	$	17,960

The carrying amounts and estimated fair values of financial instruments at September 30, 2013 and December 31, 2012 are as follows (in thousands):

			Fair Value Measurements at
			September 30, 2013 Using:
	Carrying Value		Level 1		Level 2		Level 3		Total
(Dollars in thousands)
Financial assets
Cash and cash equivalents	$	102,448	$	102,448	$	-	$	-	$	102,448
Interest-bearing deposits with banks		250		250		-		-		250
Securities available-for-sale		310,558		-		309,563		995		310,558
Securities held-to-maturity		78,371		-		77,739		-		77,739
Federal Home Loan Bank stock		5,099		N/A		N/A		N/A		N/A
Loans held for sale		2,435		-		2,435		-		2,435
Loans, net		1,184,561		-		-		1,192,268		1,192,268
Accrued interest receivable		4,156		-		1,397		2,759		4,156
Derivative assets		1,760		-		1,760		-		1,760
Financial liabilities
Deposits	$	(1,524,938)	$	(1,212,541)	$	(313,646)	$	-	$	(1,526,187)
Short-term borrowings		(32,167)		-		(32,167)		-		(32,167)
Notes payable		(50,695)		-		(26,160)		(17,414)		(43,574)
Accrued interest payable		(717)		-		(705)		(12)		(717)
Standby letters of credit		(233)		-		-		(233)		(233)
Derivative liabilities		(1,760)		-		(1,760)		-		(1,760)

			Fair Value Measurements at
			December 31, 2012 Using:
	Carrying Value		Level 1		Level 2		Level 3		Total
(Dollars in thousands)
Financial assets
Cash and cash equivalents	$	151,832	$	151,832	$	-	$	-	$	151,832
Interest-bearing deposits with     banks		250		250		-		-		250
Securities available-for-sale		314,444		-		313,384		1,060		314,444
Securities held-to-maturity		66,843		-		68,504		-		68,504
Federal Home Loan Bank stock		5,099		N/A		N/A		N/A		N/A
Loans held for sale		16,324		-		16,324		-		16,324
Loans, net		1,178,841		-		-		1,182,273		1,182,273
Accrued interest receivable		4,259		-		1,447		2,812		4,259
Derivative assets		1,926				1,926		-		1,926
Financial liabilities
Deposits	$	(1,570,007)	$	(1,210,925)	$	(360,671)	$	-	$	(1,571,596)
Short-term borrowings		(41,408)		-		(41,408)		-		(41,408)
Notes payable		(48,715)		-		(22,392)		(17,192)		(39,584)
Accrued interest payable		(1,031)		-		(1,018)		(13)		(1,031)
Standby letters of credit		(271)		-		-		(271)		(271)
Derivative liabilities		(1,926)		-		(1,926)		-		(1,926)

Estimated fair value for both securities available-for-sale and held-to-maturity and derivatives were previously described.

The methods and assumptions, not previously presented, used to estimate fair values are described as follows:

Cash and cash equivalents: The carrying amounts of cash and cash equivalents approximate fair values and are classified as Level 1.

Interest-bearing deposits with banks: The carrying amount of interest-bearing deposits equivalents approximate fair value and are classified a Level 1.

Federal Home Loan Bank stock: It is not practicable to determine the fair value of Federal Home Loan Bank stock due to restrictions placed on its transferability.

Loans held for sale: The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification.

Loans, net: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

Accrued interest receivable/payable: The carrying amounts of accrued interest approximate fair value resulting in a Level 1, Level 2 or Level 3 classification consistent with the classification of the asset/liability with which they are associated.

Deposits: The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. The carrying amounts of variable rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date resulting in a Level 2 classification. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

Short-term borrowings: The carrying amounts of short-term borrowings, generally maturing within ninety days, approximate their fair values resulting in a Level 2 classification.

Notes payable: The carrying amounts of borrowings under repurchase agreements approximate their fair values resulting in a Level 2 classification. The fair values of the Company’s long-term borrowings are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification. The fair values of the Company’s subordinated debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.

Standby letters of credit and off-balance sheet instruments: Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing, which results in a level 3 classification. The fair value of commitments is not material. Estimated fair value of standby letters of credit are based on their current unearned fee balance. Estimated fair value for commitments to make loans and unused lines of credit are considered nominal.

XML

Fair Value (Carrying Amounts and Estimated Fair Values of Financial Instruments) (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Financial assets
Cash and cash equivalents	$ 102,448	$ 151,832
Interest-bearing deposits with banks	250	250
Securities available-for-sale	310,558	314,444
Securities held-to-maturity	77,739	68,504
Federal Home Loan Bank stock	0	0
Loans held for sale	2,435	16,324
Loans, net	1,192,268	1,182,273
Accrued interest receivable	4,156	4,259
Derivative assets	1,760	1,926
Financial liabilities
Deposits	(1,526,187)	(1,571,596)
Short-term borrowings	(32,167)	(41,408)
Notes payable	(43,574)	(39,584)
Accrued interest payable	(717)	(1,031)
Standby letters of credit	(233)	(271)
Derivative liabilities	(1,760)	(1,926)
Carrying Value [Member]
Financial assets
Cash and cash equivalents	102,448	151,832
Interest-bearing deposits with banks	250	250
Securities available-for-sale	310,558	314,444
Securities held-to-maturity	78,371	66,843
Federal Home Loan Bank stock	5,099	5,099
Loans held for sale	2,435	16,324
Loans, net	1,184,561	1,178,841
Accrued interest receivable	4,156	4,259
Derivative assets	1,760	1,926
Financial liabilities
Deposits	(1,524,938)	(1,570,007)
Short-term borrowings	(32,167)	(41,408)
Notes payable	(50,695)	(48,715)
Accrued interest payable	(717)	(1,031)
Standby letters of credit	(233)	(271)
Derivative liabilities	(1,760)	(1,926)
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Financial assets
Cash and cash equivalents	102,448	151,832
Interest-bearing deposits with banks	250	250
Securities available-for-sale	0	0
Securities held-to-maturity	0	0
Federal Home Loan Bank stock	0	0
Loans held for sale	0	0
Loans, net	0	0
Accrued interest receivable	0	0
Derivative assets	0
Financial liabilities
Deposits	(1,212,541)	(1,210,925)
Short-term borrowings	0	0
Notes payable	0	0
Accrued interest payable	0	0
Standby letters of credit	0	0
Derivative liabilities	0	0
Significant Other Observable Inputs (Level 2) [Member]
Financial assets
Cash and cash equivalents	0	0
Interest-bearing deposits with banks	0	0
Securities available-for-sale	309,563	313,384
Securities held-to-maturity	77,739	68,504
Federal Home Loan Bank stock	0	0
Loans held for sale	2,435	16,324
Loans, net	0	0
Accrued interest receivable	1,397	1,447
Derivative assets	1,760	1,926
Financial liabilities
Deposits	(313,646)	(360,671)
Short-term borrowings	(32,167)	(41,408)
Notes payable	(26,160)	(22,392)
Accrued interest payable	(705)	(1,018)
Standby letters of credit	0	0
Derivative liabilities	(1,760)	(1,926)
Significant Unobservable Inputs (Level 3) [Member]
Financial assets
Cash and cash equivalents	0	0
Interest-bearing deposits with banks	0	0
Securities available-for-sale	995	1,060
Securities held-to-maturity	0	0
Federal Home Loan Bank stock	0	0
Loans held for sale	0	0
Loans, net	1,192,268	1,182,273
Accrued interest receivable	2,759	2,812
Derivative assets	0	0
Financial liabilities
Deposits	0	0
Short-term borrowings	0	0
Notes payable	(17,414)	(17,192)
Accrued interest payable	(12)	(13)
Standby letters of credit	(233)	(271)
Derivative liabilities	$ 0	$ 0

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Loans (Individually Impaired Loans by Class of Loans) (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	$ 32,784	$ 37,680	$ 32,784	$ 37,680	$ 37,562
Recorded Investment	29,581	34,503	29,581	34,503	33,856
Allowance for Loan Losses Allocated	4,573	6,254	4,573	6,254	6,265
Average Recorded Investment	30,061	35,515	32,065	36,647
Interest Income Recognized	144	218	384	662
Interest Received	138	211	343	601
Commercial [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment	5,152		5,152		1,840
Allowance for Loan Losses Allocated	1,545		1,545		1,266
Residential Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment	7,106		7,106		8,666
Allowance for Loan Losses Allocated	803		803		970
Non Residential Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment	14,522		14,522		18,076
Allowance for Loan Losses Allocated	1,224		1,224		2,540
Construction [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment	2,801		2,801		5,154
Allowance for Loan Losses Allocated	1,001		1,001		1,369
Consumer [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment	0		0		120
Allowance for Loan Losses Allocated	0		0		120
Impaired Financing Receivables with No Related Allowance [Member] | Commercial [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	111	30	111	30	28
Recorded Investment	111	30	111	30	28
Allowance for Loan Losses Allocated	0	0	0	0	0
Average Recorded Investment	141	170	138	263
Interest Income Recognized	0	0	0	0
Interest Received	0	0	0	0
Impaired Financing Receivables with No Related Allowance [Member] | Residential Real Estate [Member] | Home Equity Line of Credit [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	0	50	0	50	50
Recorded Investment	0	50	0	50	50
Allowance for Loan Losses Allocated	0	0	0	0	0
Average Recorded Investment	17	50	20	50
Interest Income Recognized	0	0	0	0
Interest Received	0	0	0	0
Impaired Financing Receivables with No Related Allowance [Member] | Residential Real Estate [Member] | Multi Family [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	1,319	379	1,319	379	0
Recorded Investment	969	48	969	48	0
Allowance for Loan Losses Allocated	0	0	0	0	0
Average Recorded Investment	485	24	485	273
Interest Income Recognized	0	0	0	0
Interest Received	0	0	0	0
Impaired Financing Receivables with No Related Allowance [Member] | Residential Real Estate [Member] | Residential Real Estate Other Financing Receivable [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	1,163	2,869	1,163	2,869	1,922
Recorded Investment	1,052	2,626	1,052	2,626	1,679
Allowance for Loan Losses Allocated	0	0	0	0	0
Average Recorded Investment	1,642	2,336	1,902	2,094
Interest Income Recognized	0	0	0	0
Interest Received	0	0	0	0
Impaired Financing Receivables with No Related Allowance [Member] | Non Residential Real Estate [Member] | Owner occupied properties
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	1,293	802	1,293	802	0
Recorded Investment	1,165	792	1,165	792	0
Allowance for Loan Losses Allocated	0	0	0	0	0
Average Recorded Investment	772	490	2,450	698
Interest Income Recognized	0	0	0	0
Interest Received	0	0	0	0
Impaired Financing Receivables with No Related Allowance [Member] | Non Residential Real Estate [Member] | Commercial Mortgage Loans, Non Owner Occupied [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	4,534	6,206	4,534	6,206	5,056
Recorded Investment	4,296	5,701	4,296	5,701	4,551
Allowance for Loan Losses Allocated	0	0	0	0	0
Average Recorded Investment	4,428	3,797	4,359	2,848
Interest Income Recognized	0	0	0	0
Interest Received	0	0	0	0
Impaired Financing Receivables with No Related Allowance [Member] | Construction [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	0	809	0	809	0
Recorded Investment	0	509	0	509	0
Allowance for Loan Losses Allocated	0	0	0	0	0
Average Recorded Investment	0	432	514	256
Interest Income Recognized	0	0	0	0
Interest Received	0	0	0	0
Impaired Financing Receivables with No Related Allowance [Member] | Consumer [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	0		0		0
Recorded Investment	0		0		0
Allowance for Loan Losses Allocated	0		0		0
Average Recorded Investment	0		0
Interest Income Recognized	0		0
Interest Received	0		0
Impaired Financing Receivables with Related Allowance [Member] | Commercial [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	5,041	1,088	5,041	1,088	1,812
Recorded Investment	5,041	1,088	5,041	1,088	1,812
Allowance for Loan Losses Allocated	1,545	317	1,545	317	1,266
Average Recorded Investment	3,784	823	2,623	950
Interest Income Recognized	57	4	91	7
Interest Received	52	4	80	5
Impaired Financing Receivables with Related Allowance [Member] | Residential Real Estate [Member] | Home Equity Line of Credit [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	388	1,488	388	1,488	766
Recorded Investment	373	1,488	373	1,488	566
Allowance for Loan Losses Allocated	155	1,341	155	1,341	212
Average Recorded Investment	356	813	475	339
Interest Income Recognized	3	12	9	12
Interest Received	3	12	9	12
Impaired Financing Receivables with Related Allowance [Member] | Residential Real Estate [Member] | Multi Family [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	0	1,324	0	1,324	1,320
Recorded Investment	0	1,324	0	1,324	1,320
Allowance for Loan Losses Allocated	0	243	0	243	248
Average Recorded Investment	485	1,554	543	815
Interest Income Recognized	0	11	8	22
Interest Received	0	11	8	22
Impaired Financing Receivables with Related Allowance [Member] | Residential Real Estate [Member] | Residential Real Estate Other Financing Receivable [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	5,188	3,109	5,188	3,109	5,196
Recorded Investment	4,712	2,964	4,712	2,964	5,051
Allowance for Loan Losses Allocated	648	145	648	145	510
Average Recorded Investment	4,671	3,309	5,177	3,557
Interest Income Recognized	20	31	61	76
Interest Received	19	24	58	64
Impaired Financing Receivables with Related Allowance [Member] | Non Residential Real Estate [Member] | Owner occupied properties
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	7,479	8,544	7,479	8,544	9,142
Recorded Investment	6,350	8,543	6,350	8,543	8,190
Allowance for Loan Losses Allocated	1,014	2,651	1,014	2,651	1,644
Average Recorded Investment	7,749	8,774	6,204	9,081
Interest Income Recognized	2	81	13	239
Interest Received	2	81	10	237
Impaired Financing Receivables with Related Allowance [Member] | Non Residential Real Estate [Member] | Commercial Mortgage Loans, Non Owner Occupied [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	3,264	4,595	3,264	4,595	5,876
Recorded Investment	2,711	4,074	2,711	4,074	5,335
Allowance for Loan Losses Allocated	210	342	210	342	896
Average Recorded Investment	2,652	6,449	3,734	7,406
Interest Income Recognized	34	34	109	143
Interest Received	34	34	102	106
Impaired Financing Receivables with Related Allowance [Member] | Construction [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	3,004	6,387	3,004	6,387	6,274
Recorded Investment	2,801	5,266	2,801	5,266	5,154
Allowance for Loan Losses Allocated	1,001	1,215	1,001	1,215	1,369
Average Recorded Investment	2,879	6,494	3,421	8,017
Interest Income Recognized	28	45	93	163
Interest Received	28	45	76	155
Impaired Financing Receivables with Related Allowance [Member] | Consumer [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	0		0		120
Recorded Investment	0		0		120
Allowance for Loan Losses Allocated	0		0		120
Average Recorded Investment	0		20
Interest Income Recognized	0		0
Interest Received	$ 0		$ 0

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Earnings per Share (Additional Information) (Detail)	1 Months Ended	3 Months Ended		9 Months Ended
	May 29, 2013	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Options not considered in diluted earnings per share computation as they were not dilutive		44,404	187,720	46,778	264,389
Dilutive effects of assumed exercises of stock options and warrants	276,078.12	32,760	88,133	73,500	77,415

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Earnings per Share (Numbers of Shares Used to Compute Basic and Diluted Earnings Per Share) (Detail)	1 Months Ended	3 Months Ended		9 Months Ended
	May 29, 2013	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Schedule of Earnings Per Share, Basic and Diluted, by Common Class [Line Items]
Weighted average shares outstanding		7,516,770	7,465,926	7,495,763	7,459,988
Dilutive effects of assumed exercises of stock options and warrants	276,078.12	32,760	88,133	73,500	77,415
Shares used to compute diluted earnings per share		7,549,530	7,554,059	7,569,263	7,537,403

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Fair Value (Quantitative Information About Recurring Level Three Fair Value Measurements ) (Detail) (USD $) In Thousands, unless otherwise specified					9 Months Ended															9 Months Ended																									9 Months Ended
	Sep. 30, 2013	Dec. 31, 2012	Sep. 30, 2013 Corporate	Dec. 31, 2012 Corporate	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Cost Sales Income Approach Valuation Technique [Member] Non-residential [Member]	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Cost Sales Income Approach Valuation Technique [Member] Owner occupied properties	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Cost Sales Income Approach Valuation Technique [Member] Non owner occupied propertiesproperties	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Cost Sales Income Approach Valuation Technique [Member] Residential [Member]	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Cost Sales Income Approach Valuation Technique [Member] Home Equity Line Of Credit [Member]	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Cost Sales Income Approach Valuation Technique [Member] Other [Member]	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Cost Sales Income Approach Valuation Technique [Member] Other real estate owned [Member] Non-residential [Member]	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Cost Sales Income Approach Valuation Technique [Member] Commercial [Member]	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Cost Sales Income Approach Valuation Technique [Member] Residential Real Estate [Member] Home Equity Line Of Credit [Member]	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Cost Sales Income Approach Valuation Technique [Member] Residential Real Estate [Member] Other [Member]	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Cost Sales Income Approach Valuation Technique [Member] Non Residential Real Estate [Member] Owner occupied properties	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Cost Sales Income Approach Valuation Technique [Member] Non Residential Real Estate [Member] Non owner occupied propertiesproperties	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Cost Sales Income Approach Valuation Technique [Member] Construction [Member]	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Corporate	Dec. 31, 2012 Significant Unobservable Inputs (Level 3) [Member] Corporate	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Maximum [Member] Cost Sales Income Approach Valuation Technique [Member] Non-residential [Member]	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Maximum [Member] Cost Sales Income Approach Valuation Technique [Member] Owner occupied properties	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Maximum [Member] Cost Sales Income Approach Valuation Technique [Member] Non owner occupied propertiesproperties	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Maximum [Member] Cost Sales Income Approach Valuation Technique [Member] Residential [Member]	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Maximum [Member] Cost Sales Income Approach Valuation Technique [Member] Home Equity Line Of Credit [Member]	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Maximum [Member] Cost Sales Income Approach Valuation Technique [Member] Other [Member]	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Maximum [Member] Cost Sales Income Approach Valuation Technique [Member] Commercial [Member]	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Maximum [Member] Cost Sales Income Approach Valuation Technique [Member] Construction [Member]	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Minimum [Member] Cost Sales Income Approach Valuation Technique [Member] Non-residential [Member]	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Minimum [Member] Cost Sales Income Approach Valuation Technique [Member] Owner occupied properties	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Minimum [Member] Cost Sales Income Approach Valuation Technique [Member] Non owner occupied propertiesproperties	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Minimum [Member] Cost Sales Income Approach Valuation Technique [Member] Residential [Member]	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Minimum [Member] Cost Sales Income Approach Valuation Technique [Member] Home Equity Line Of Credit [Member]	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Minimum [Member] Cost Sales Income Approach Valuation Technique [Member] Other [Member]	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Minimum [Member] Cost Sales Income Approach Valuation Technique [Member] Commercial [Member]	Sep. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Minimum [Member] Cost Sales Income Approach Valuation Technique [Member] Construction [Member]	Sep. 30, 2013 Fair Value, Measurements, Recurring [Member] Significant Unobservable Inputs (Level 3) [Member]	Sep. 30, 2013 Fair Value, Measurements, Recurring [Member] Significant Unobservable Inputs (Level 3) [Member] Residential [Member]	Sep. 30, 2013 Fair Value, Measurements, Recurring [Member] Significant Unobservable Inputs (Level 3) [Member] Other real estate owned [Member] Non-residential [Member]	Sep. 30, 2013 Fair Value, Measurements, Recurring [Member] Significant Unobservable Inputs (Level 3) [Member] Commercial [Member]	Sep. 30, 2013 Fair Value, Measurements, Recurring [Member] Significant Unobservable Inputs (Level 3) [Member] Residential Real Estate [Member] Home Equity Line Of Credit [Member]	Sep. 30, 2013 Fair Value, Measurements, Recurring [Member] Significant Unobservable Inputs (Level 3) [Member] Residential Real Estate [Member] Other [Member]	Sep. 30, 2013 Fair Value, Measurements, Recurring [Member] Significant Unobservable Inputs (Level 3) [Member] Non Residential Real Estate [Member] Owner occupied properties	Sep. 30, 2013 Fair Value, Measurements, Recurring [Member] Significant Unobservable Inputs (Level 3) [Member] Non Residential Real Estate [Member] Non owner occupied propertiesproperties	Sep. 30, 2013 Fair Value, Measurements, Recurring [Member] Significant Unobservable Inputs (Level 3) [Member] Construction [Member]	Sep. 30, 2013 Fair Value, Measurements, Recurring [Member] Significant Unobservable Inputs (Level 3) [Member] Corporate Discounted Cash Flows Valuation Technique [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Investment securities available-for-sale	$ 310,558	$ 314,444	$ 995	$ 1,060														$ 995	$ 1,060																										$ 995
Probability of default																																													0.00%
Impaired loans	$ 1,192,268	$ 1,182,273																																		$ 17,960	$ 195	$ 3,268	$ 3,393	$ 218	$ 4,064	$ 5,157	$ 869	$ 796
Unobservable Input, discounts ranging					0.00%	10.00%	4.00%	0.00%	14.00%	9.00%		45.00%					21.00%			0.00%	90.00%	100.00%	0.00%	95.00%	100.00%	95.00%	100.00%	0.00%	0.00%	80.00%	0.00%	85.00%	0.00%	0.00%	0.00%
Valuation Techniques								Cost, sales, income approach			Cost, sales, income approach	Cost, sales, income approach	Cost, sales, income approach	Cost, sales, income approach	Cost, sales, income approach	Cost, sales, income approach	Cost, sales, income approach

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Securities (Securities with Unrealized Losses Aggregated by Investment Category and Length of Time Individual Securities have been in Continuous Unrealized Loss Position) (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2013	Dec. 31, 2012
Investments, Unrealized Loss Position [Line Items]
Available-for-sale Securities, Less than 12 Months Fair Value	$ 179,648	$ 30,019
Available-for-sale Securities, Less than 12 Months Unrealized Loss	(4,266)	(153)
Available-for-sale Securities, 12 Months or More Fair Value	0	0
Available-for-sale Securities, 12 Months or More Unrealized Loss	0	0
Available-for-sale Securities, Total Fair Value	179,648	30,019
Available-for-sale Securities, Total Unrealized Loss	(4,266)	(153)
Held-to-maturity Securities, Less than 12 Months Fair Value	34,397	15,056
Held-to-maturity Securities, Less than 12 Months Unrecognized Loss	(1,620)	(239)
Held-to-maturity Securities, 12 Months or More Fair Value	5,403	0
Held-to-maturity Securities, 12 Months or More Unrecognized Loss	(108)	0
Held-to-maturity Securities, Total Fair Value	39,800	15,056
Held-to-maturity Securities, Total Unrecognized Loss	(1,728)	(239)
U S Treasury and Government [Member]
Investments, Unrealized Loss Position [Line Items]
Available-for-sale Securities, Less than 12 Months Fair Value	89,115	11,877
Available-for-sale Securities, Less than 12 Months Unrealized Loss	(2,356)	(69)
Available-for-sale Securities, 12 Months or More Fair Value	0	0
Available-for-sale Securities, 12 Months or More Unrealized Loss	0	0
Available-for-sale Securities, Total Fair Value	89,115	11,877
Available-for-sale Securities, Total Unrealized Loss	(2,356)	(69)
Residential Mortgage Backed Securities [Member]
Investments, Unrealized Loss Position [Line Items]
Available-for-sale Securities, Less than 12 Months Fair Value	90,533	18,142
Available-for-sale Securities, Less than 12 Months Unrealized Loss	(1,910)	(84)
Available-for-sale Securities, 12 Months or More Fair Value	0	0
Available-for-sale Securities, 12 Months or More Unrealized Loss	0	0
Available-for-sale Securities, Total Fair Value	90,533	18,142
Available-for-sale Securities, Total Unrealized Loss	(1,910)	(84)
Municipal and Other Obligations [Member]
Investments, Unrealized Loss Position [Line Items]
Held-to-maturity Securities, Less than 12 Months Fair Value	34,397	15,056
Held-to-maturity Securities, Less than 12 Months Unrecognized Loss	(1,620)	(239)
Held-to-maturity Securities, 12 Months or More Fair Value	5,403	0
Held-to-maturity Securities, 12 Months or More Unrecognized Loss	(108)	0
Held-to-maturity Securities, Total Fair Value	39,800	15,056
Held-to-maturity Securities, Total Unrecognized Loss	$ (1,728)	$ (239)

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Loans (Loans by Class Modified as Troubled Debt Restructurings) (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013 Number	Sep. 30, 2012 Number	Sep. 30, 2013 Number	Sep. 30, 2012 Number
Financing Receivable, Modifications [Line Items]
Number of Loans	2	1	8	10
Pre-Modification Outstanding Recorded Investment	$ 40	$ 32	$ 2,642	$ 4,221
Post-Modification Outstanding Recorded Investment	39	30	2,546	3,530
Commercial [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	1	1	3	2
Pre-Modification Outstanding Recorded Investment	19	32	190	190
Post-Modification Outstanding Recorded Investment	19	30	128	184
Residential Real Estate [Member] | Home Equity Line of Credit [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	0	0	0	0
Pre-Modification Outstanding Recorded Investment	0	0	0	0
Post-Modification Outstanding Recorded Investment	0	0	0	0
Residential Real Estate [Member] | Multi Family [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	0	0	1	1
Pre-Modification Outstanding Recorded Investment	0	0	970	485
Post-Modification Outstanding Recorded Investment	0	0	969	48
Residential Real Estate [Member] | Residential Real Estate Other Financing Receivable [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	1	0	2	1
Pre-Modification Outstanding Recorded Investment	21	0	512	187
Post-Modification Outstanding Recorded Investment	20	0	511	186
Non Residential Real Estate [Member] | Owner occupied properties
Financing Receivable, Modifications [Line Items]
Number of Loans	0	0	0	1
Pre-Modification Outstanding Recorded Investment	0	0	0	154
Post-Modification Outstanding Recorded Investment	0	0	0	154
Non Residential Real Estate [Member] | Commercial Mortgage Loans, Non Owner Occupied [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	0	0	2	0
Pre-Modification Outstanding Recorded Investment	0	0	970	0
Post-Modification Outstanding Recorded Investment	0	0	938	0
Construction [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	0	0	0	5
Pre-Modification Outstanding Recorded Investment	0	0	0	3,205
Post-Modification Outstanding Recorded Investment	0	0	0	2,958
Consumer [Member] | Consumer Credit Card Financing Receivable [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	0	0	0	0
Pre-Modification Outstanding Recorded Investment	0	0	0	0
Post-Modification Outstanding Recorded Investment	0	0	0	0
Consumer [Member] | Consumer Other Financing Receivable [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	0	0	0	0
Pre-Modification Outstanding Recorded Investment	0	0	0	0
Post-Modification Outstanding Recorded Investment	0	0	0	0
Municipal Obligations [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	0	0	0	0
Pre-Modification Outstanding Recorded Investment	0	0	0	0
Post-Modification Outstanding Recorded Investment	$ 0	$ 0	$ 0	$ 0

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Fair Value (Additional Information) (Detail) (USD $)	3 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2013	Dec. 31, 2012
Fair Value Measurements [Line Items]
Impaired loans gross carrying amount	$ 19,007	$ 19,007	$ 24,560
Valuation Allowance For Collateral Dependent Loans	4,511	4,511	6,265
Decrease In Provision For Loan Losses	150	1,692	1,178
Other Real Estate	3,445	3,445	3,079
Other Real Estate Outstanding	4,126	4,126	3,728
Other Real Estate, Valuation Adjustments	228,000	681	649
Other Real Estate Write Down Or Reserve Amount	$ 681	$ 681	$ 369

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Securities (Fair Value of Available for Sale Securities and Related Gains and Losses Recognized in Accumulated Other Comprehensive Income or Loss) (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2013	Dec. 31, 2012
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 311,820	$ 308,495
Gross Unrealized Gains	3,004	6,102
Gross Unrealized Losses	(4,266)	(153)
Fair Value	310,558	314,444
U S Treasury and Government [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	121,162	127,416
Gross Unrealized Gains	223	1,130
Gross Unrealized Losses	(2,356)	(69)
Fair Value	119,029	128,477
Residential Mortgage Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	189,663	180,019
Gross Unrealized Gains	2,781	4,972
Gross Unrealized Losses	(1,910)	(84)
Fair Value	190,534	184,907
Corporate Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	995	1,060
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Fair Value	$ 995	$ 1,060

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Loans (Additional Information) (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Accounts, Notes, Loans and Financing Receivable [Line Items]
Specific reserves to customers whose loan terms have been modified in troubled debt restructurings	$ 1,737,000	$ 2,837,000	$ 1,737,000	$ 2,837,000
Troubled debt restructurings	15,963,000	17,130,000	15,963,000	17,130,000
Increased the allowance for loan losses due to troubled debt restructurings			0	1,115,000
Charge offs due to troubled debt restructurings			350,000	1,262,000
Post-Modification Outstanding Recorded Investment	39,000	30,000	2,546,000	3,530,000
Troubled Debt Restructuring That Subsequently Defaults [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Increased the allowance for loan losses due to troubled debt restructurings			31,000	386,000
Charge offs due to troubled debt restructurings	0	0	553,000	1,112,000
Loans individually analyzed for credit quality based on credit risk, individual outstanding balance	$ 100,000		$ 100,000
Loan Modification Reduction of Stated Interest Rate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loan term modifications in troubled debt restructurings, time period			3 years
Loan Modification Extension of Maturity Date [Member] | Minimum [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loan term modifications in troubled debt restructurings, time period			8 months
Loan Modification Extension of Maturity Date [Member] | Maximum [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loan term modifications in troubled debt restructurings, time period			12 months

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Accumulated Other Comprehensive Income (Tables)

9 Months Ended

Sep. 30, 2013

Stockholders Equity Note [Abstract]

Reclassification out of Accumulated Other Comprehensive Income

The following table summarizes the changes within each classification of accumulated other comprehensive income for the nine months ended September 30, 2013: 

Reclassifications Out Of Accumulated Other Comprehensive Income

Details about Accumulated other Comprehensive Income Components	Amount Reclassified From Accumulated Other Comprehensive Income		Affected Line Item In the Statement Where Net Income is Presented
		(in thousands)
Unrealized gains and losses on available-for-sale securities	$	274	Net securities gains
		(96)	Income tax expense
	$	178	Net of tax

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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Beginning balance	$ 170,229	$ 164,450	$ 170,440	$ 156,570
Comprehensive income:
Net income	5,415	4,196	13,990	13,135
Change in net unrealized gain(loss), net of tax	45	1,267	(4,760)	1,691
Comprehensive income	5,460	5,463	9,230	14,826
Cash dividends paid on common stock	(1,281)	(2,389)	(3,828)	(4,624)
Stock Activity (shares for three months ended 2013 and 2012- 30,604 and 1,555 and for the nine months ended 2013 and 2012- 58,382 and 34,401 including tax benefit)	735	37	1,231	741
Stock-based compensation expense	108	60	329	108
Warrants repurchased	0	0	(2,151)	0
Balance as of September 30	$ 175,251	$ 167,621	$ 175,251	$ 167,621
Dividends per share	$ 0.17	$ 0.32	$ 0.51	$ 0.62

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Cash Flows from Operating Activities
Net income	$ 13,990	$ 13,135
Adjustments to reconcile net income to net cash From operating activities	22,715	(1,246)
Net cash from operating activities	36,705	11,889
Cash Flows from Investing Activities
Proceeds from paydowns and maturities of held-to-maturity securities	4,363	2,780
Proceeds from paydowns and maturities of available-for-sale securities	73,070	151,460
Purchases of held-to-maturity securities	(15,940)	(12,172)
Purchases of available-for-sale securities	(84,244)	(138,121)
Purchases of company owned life insurance	(5,000)	0
Net change in loans	(14,223)	(39,438)
Proceeds from the sale of other real estate	4,409	2,488
Proceeds from the sale of securities	5,230	6,944
Property and equipment expenditures	(1,243)	(1,210)
Net cash from investing activities	(33,578)	(27,269)
Cash Flows from Financing Activities
Net change in deposits	(40,502)	(27,575)
Net change in short-term borrowings	(9,241)	(7,158)
Proceeds from exercise of stock options	1,231	741
Cash dividends paid	(3,828)	(4,624)
Repurchases of warrants	(2,151)	0
Proceeds from note payable	2,000	0
Payments on note payable	(20)	(18)
Net cash from financing activities	(52,511)	(38,634)
Net change in cash and cash equivalents	(49,384)	(54,014)
Cash and cash equivalents at beginning of period	151,832	135,964
Cash and cash equivalents at end of period	$ 102,448	$ 81,950

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Earnings per Share

9 Months Ended

Sep. 30, 2013

Earnings Per Share [Abstract]

Earnings per Share

Note 3 - Earnings per Share:

Earnings per share are computed based upon the weighted average number of shares of common stock outstanding during the three and nine month periods. Diluted earnings per share show the potential dilutive effect of additional common shares issuable under the Company’s stock compensation plan and warrants. For the three months ended September 30, 2013 and 2012, 44,404 and 187,720 options were not considered, as they were not dilutive, and for the nine months ended September 30, 2013 and 2012, 46,778 and 264,389 options were not considered, as they were not dilutive. On May 29, 2013 the Company repurchased 276,078.12 warrants outstanding from the U.S. Department of the Treasury. These warrants were included in the average dilution calculations until the repurchase date. The following table presents the numbers of shares used to compute basic and diluted earnings per share for the indicated periods:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Weighted average shares outstanding		7,516,770		7,465,926		7,495,763		7,459,988
Dilutive effects of assumed exercises of stock     options and warrants		32,760		88,133		73,500		77,415
Shares used to compute diluted earnings per share		7,549,530		7,554,059		7,569,263		7,537,403

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Basis of Presentation

9 Months Ended

Sep. 30, 2013

Accounting Policies [Abstract]

Basis of Presentation

Note 1 - Basis of Presentation:

The condensed consolidated financial statements include the accounts of The Bank of Kentucky Financial Corporation (“BKFC” or the “Company”) and its wholly owned subsidiary, The Bank of Kentucky, Inc. (the “Bank”). All significant intercompany accounts and transactions have been eliminated.

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Loans (Loans by Class Modified as Troubled Debt Restructurings for which there was Payment Default within Twelve Months following Modification) (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013 Number	Sep. 30, 2012 Number	Sep. 30, 2013 Number	Sep. 30, 2012 Number
Troubled Debt Restructuring, Debtor, Subsequent Periods [Line Items]
Number of Loans	1	1	12	7
Recorded Investment	$ 15	$ 659	$ 5,978	$ 6,781
Commercial [Member]
Troubled Debt Restructuring, Debtor, Subsequent Periods [Line Items]
Number of Loans	1	0	3	1
Recorded Investment	15	0	180	154
Residential Real Estate [Member] | Home Equity Line Of Credit [Member]
Troubled Debt Restructuring, Debtor, Subsequent Periods [Line Items]
Number of Loans		0
Recorded Investment		0
Residential Real Estate [Member] | Multi Family [Member]
Troubled Debt Restructuring, Debtor, Subsequent Periods [Line Items]
Number of Loans	0	0	1	1
Recorded Investment	0	0	970	48
Residential Real Estate [Member] | Residential Real Estate Other Financing Receivable [Member]
Troubled Debt Restructuring, Debtor, Subsequent Periods [Line Items]
Number of Loans	0	0	0	0
Recorded Investment	0	0	0	0
Non Residential Real Estate [Member] | Owner occupied properties
Troubled Debt Restructuring, Debtor, Subsequent Periods [Line Items]
Number of Loans	0	0	1	0
Recorded Investment	0	0	150	0
Non Residential Real Estate [Member] | Commercial Mortgage Loans, Non Owner Occupied [Member]
Troubled Debt Restructuring, Debtor, Subsequent Periods [Line Items]
Number of Loans	0	0	3	2
Recorded Investment	0	0	3,136	2,954
Construction [Member]
Troubled Debt Restructuring, Debtor, Subsequent Periods [Line Items]
Number of Loans	0	1	4	3
Recorded Investment	0	659	1,542	3,625
Consumer [Member] | Consumer Credit Card Financing Receivable [Member]
Troubled Debt Restructuring, Debtor, Subsequent Periods [Line Items]
Number of Loans		0	0	0
Recorded Investment		0	0	0
Consumer [Member] | Consumer Other Financing Receivable [Member]
Troubled Debt Restructuring, Debtor, Subsequent Periods [Line Items]
Number of Loans		0	0	0
Recorded Investment		0	0	0
Municipal Obligations [Member]
Troubled Debt Restructuring, Debtor, Subsequent Periods [Line Items]
Number of Loans	0	0	0	0
Recorded Investment	$ 0	$ 0	$ 0	$ 0

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Stock-Based Compensation (Summary of Changes in the Company Nonvested Shares) (Detail) (USD $)	3 Months Ended	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2013
Beginning balance, Nonvested Shares	14,476	4,185
Granted, Shares	0	14,476
Vested, Shares	0	4,185
Forfeited, Shares	453	453
Ending balance, Nonvested Shares	14,023	14,023
Beginning balance, Nonvested, Weighted-Average Grant-Date Fair Value	$ 26.24	$ 25.80
Granted, Weighted-Average Grant-Date Fair Value	$ 0	$ 26.39
Vested, Weighted-Average Grant-Date Fair Value	$ 0	$ 25.80
Forfeited, Weighted-Average Grant-Date Fair Value	$ 26.49	$ 26.49
Ending balance, Nonvested, Weighted-Average Grant-Date Fair Value	$ 26.38	$ 26.38

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Securities (Amortized Cost Unrecognized Gains and Losses and Fair Value of Securities Held to Maturity) (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2013	Dec. 31, 2012
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost	$ 78,371	$ 66,843
Fair Value	77,739	68,504
US States and Political Subdivisions Debt Securities [Member]
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost	78,371	66,843
Gross Unrecognized Gains	1,096	1,900
Gross Unrecognized Losses	(1,728)	(239)
Fair Value	$ 77,739	$ 68,504

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Loans (Allowance for Loan Losses and Recorded Investment in Loans by Portfolio Segment and Based on Impairment Method) (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Allowance for loan losses
Beginning balance	$ 16,650	$ 18,346	$ 16,568	$ 18,288
Provision for loan losses	600	2,200	4,200	5,700
Loans charged off	(1,025)	(4,239)	(5,083)	(7,877)
Recoveries	407	278	947	474
Total ending allowance balance	16,632	16,585	16,632	16,585
Ending allowance balance attributable to loans
Individually evaluated for impairment	4,573	6,254	4,573	6,254	6,265
Collectively evaluated for impairment	12,059		12,059		10,303
Total ending allowance balance	16,632	16,585	16,632	16,585
Loans
Loans individually evaluated for impairment	29,581	34,503	29,581	34,503	33,856
Loans collectively evaluated for impairment	1,173,189		1,173,189		1,162,988
Total ending loans balance	1,202,770		1,202,770		1,196,844
Commercial [Member]
Allowance for loan losses
Beginning balance	2,583	2,159	2,716	3,207
Provision for loan losses	467	(215)	874	(892)
Loans charged off	(5)	(89)	(582)	(461)
Recoveries	31	18	68	19
Total ending allowance balance	3,076	1,873	3,076	1,873
Ending allowance balance attributable to loans
Individually evaluated for impairment	1,545		1,545		1,266
Collectively evaluated for impairment	1,531		1,531		1,450
Total ending allowance balance	3,076	1,873	3,076	1,873
Loans
Loans individually evaluated for impairment	5,152		5,152		1,840
Loans collectively evaluated for impairment	216,178		216,178		199,544
Total ending loans balance	221,330		221,330		201,384
Residential Real Estate [Member]
Allowance for loan losses
Beginning balance	4,214	3,786	4,272	2,591
Provision for loan losses	486	2,095	1,931	3,782
Loans charged off	(451)	(1,051)	(1,998)	(1,573)
Recoveries	155	3	199	33
Total ending allowance balance	4,404	4,833	4,404	4,833
Ending allowance balance attributable to loans
Individually evaluated for impairment	803		803		970
Collectively evaluated for impairment	3,601		3,601		3,302
Total ending allowance balance	4,404	4,833	4,404	4,833
Loans
Loans individually evaluated for impairment	7,106		7,106		8,666
Loans collectively evaluated for impairment	268,832		268,832		269,620
Total ending loans balance	275,938		275,938		278,286
Non Residential Real Estate [Member]
Allowance for loan losses
Beginning balance	7,280	6,666	6,991	7,614
Provision for loan losses	(180)	875	1,305	1,095
Loans charged off	(380)	(436)	(1,639)	(1,609)
Recoveries	10	183	73	188
Total ending allowance balance	6,730	7,288	6,730	7,288
Ending allowance balance attributable to loans
Individually evaluated for impairment	1,224		1,224		2,540
Collectively evaluated for impairment	5,506		5,506		4,451
Total ending allowance balance	6,730	7,288	6,730	7,288
Loans
Loans individually evaluated for impairment	14,522		14,522		18,076
Loans collectively evaluated for impairment	548,610		548,610		555,025
Total ending loans balance	563,132		563,132		573,101
Construction [Member]
Allowance for loan losses
Beginning balance	2,061	5,167	1,964	4,701
Provision for loan losses	(221)	(729)	(139)	977
Loans charged off	0	(2,292)	(234)	(3,538)
Recoveries	142	2	391	8
Total ending allowance balance	1,982	2,148	1,982	2,148
Ending allowance balance attributable to loans
Individually evaluated for impairment	1,001		1,001		1,369
Collectively evaluated for impairment	981		981		595
Total ending allowance balance	1,982	2,148	1,982	2,148
Loans
Loans individually evaluated for impairment	2,801		2,801		5,154
Loans collectively evaluated for impairment	96,693		96,693		99,344
Total ending loans balance	99,494		99,494		104,498
Consumer [Member]
Allowance for loan losses
Beginning balance	450	392	584	162
Provision for loan losses	42	325	202	726
Loans charged off	(189)	(371)	(630)	(696)
Recoveries	69	72	216	226
Total ending allowance balance	372	418	372	418
Ending allowance balance attributable to loans
Individually evaluated for impairment	0		0		120
Collectively evaluated for impairment	372		372		464
Total ending allowance balance	372	418	372	418
Loans
Loans individually evaluated for impairment	0		0		120
Loans collectively evaluated for impairment	15,978		15,978		16,327
Total ending loans balance	15,978		15,978		16,447
Municipal Obligations [Member]
Allowance for loan losses
Beginning balance	62	176	41	13
Provision for loan losses	6	(151)	27	12
Loans charged off	0	0	0	0
Recoveries	0	0	0	0
Total ending allowance balance	68	25	68	25
Ending allowance balance attributable to loans
Individually evaluated for impairment	0		0		0
Collectively evaluated for impairment	68		68		41
Total ending allowance balance	68	25	68	25
Loans
Loans individually evaluated for impairment	0		0		0
Loans collectively evaluated for impairment	26,898		26,898		23,128
Total ending loans balance	$ 26,898		$ 26,898		$ 23,128

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Accumulated Other Comprehensive Income (Reclassifications Out of Accumulated Other Comprehensive Income)(Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Income tax expense	$ (2,244)	$ (1,628)	$ (5,628)	$ (5,170)
Accumulated Net Unrealized Investment Gain (Loss) [Member] | Reclassification out of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net securities gains			274
Income tax expense			(96)
Net of tax			$ 178

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Fair Value (Reconciliation of Assets Measured at Fair Value on Recurring Basis Using Significant Unobservable Inputs Level Three) (Detail) (Corporate Securities [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Corporate Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Balance of recurring Level 3 assets at January 1	$ 995	$ 1,060	$ 1,060	$ 1,060
Included in earnings	0	0	0	0
Included in other comprehensive income	0	0	0	0
Purchases	0	0	0	0
Sales	0	0	0	0
Issuances	0	0	0	0
Settlements	0	0	65	0
Transfers into Level 3	0	0	0	0
Transfers out of Level 3	0	0	0	0
Balance of recurring Level 3 assets at September 30	$ 995	$ 1,060	$ 995	$ 1,060

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CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Parenthetical) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Common stock, no par value	$ 0	$ 0
Common stock, shares authorized	15,000,000	15,000,000
Common stock, shares issued	7,528,618	7,470,236

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Reclassification

9 Months Ended

Sep. 30, 2013

Equity [Abstract]

Reclassification

Note 6 – Reclassification:

Certain prior period amounts have been reclassified to conform to the current period presentation. Such reclassifications have no effect on previously reported net income or shareholders’ equity.

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Net income	$ 5,415	$ 4,196	$ 13,990	$ 13,135
Other comprehensive income:
Unrealized holding gain/ (loss) arising during the period	70	1,921	(6,937)	2,766
Reclassification adjustment for losses (gains) included in net income	0	0	(274)	(203)
Tax effect	(25)	(654)	2,451	(872)
Total other comprehensive income (loss)	45	1,267	(4,760)	1,691
Comprehensive income	$ 5,460	$ 5,463	$ 9,230	$ 14,826

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CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Assets
Cash and cash equivalents	$ 102,448	$ 151,832
Interest-bearing deposits with banks	250	250
Available-for-sale securities	310,558	314,444
Held-to-maturity securities	78,371	66,843
Loans held for sale	2,435	16,324
Total loans	1,201,193	1,195,409
Less: Allowance for loan losses	16,632	16,568
Net loans	1,184,561	1,178,841
Premises and equipment, net	22,517	22,494
FHLB stock, at cost	5,099	5,099
Goodwill	22,023	22,023
Acquisition intangibles, net	1,995	2,462
Cash surrender value of life insurance	39,507	33,808
Accrued interest receivable and other assets	32,460	29,684
Total assets	1,802,224	1,844,104
Liabilities
Deposits	1,529,505	1,570,007
Short-term borrowings	32,167	41,408
Notes payable	50,695	48,715
Accrued interest payable and other liabilities	14,606	13,534
Total liabilities	1,626,973	1,673,664
Shareholders' Equity
Common stock, no par value, 15,000,000 shares authorized, 7,528,618(2013) and 7,470,236 (2012) shares issued	3,098	3,098
Additional paid-in capital	35,671	35,126
Retained earnings	137,315	128,289
Accumulated other comprehensive income (loss)	(833)	3,927
Total shareholders’ equity	175,251	170,440
Total liabilities and shareholders’ equity	$ 1,802,224	$ 1,844,104

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Stock-Based Compensation (Additional Information) (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Stock option and incentive plan, maximum issuable shares	1,000,000		1,000,000
Stock option and incentive plan, options granted to employees vesting period			5 years
Stock option expense	$ 12,000	$ 24,000	$ 38,000	$ 76,000
Stock option expense, net of tax	12,000	24,000	38,000	76,000
Restricted Stock or Unit Expense	96,000	36,000	291,000	36,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized	$ 154,000		$ 154,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Period for Recognition			10 months

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Loans (Tables)

9 Months Ended

Sep. 30, 2013

Receivables [Abstract]

Loan Balances

Loan balances were as follows (in thousands):	September 30,		December 31,
	2013		2012
Commercial	$	221,330	$	201,384
Residential real estate		275,938		278,286
Nonresidential real estate		563,132		573,101
Construction		99,494		104,498
Consumer		15,978		16,447
Municipal obligations		26,898		23,128
Gross loans		1,202,770		1,196,844
Less: Deferred loan origination fees and discount		(1,577)		(1,435)
Allowance for loan losses		(16,632)		(16,568)
Net loans	$	1,184,561	$	1,178,841

Allowance for Loan Losses and Recorded Investment in Loans by Portfolio Segment and Based on Impairment Method

The following tables present the activity in the allowance for loan losses for the three months ending September 30, 2013 and 2012, and the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2013 (in thousands):

					Non
			Residential		Residential						Municipal
September 30, 2013	Commercial		Real estate		Real estate		Construction		Consumer		Obligations		Total
Allowance for loan losses
Beginning balance	$	2,583	$	4,214	$	7,280	$	2,061	$	450	$	62	$	16,650
Provision for loan losses		467		486		(180)		(221)		42		6		600
Loans charged off		(5)		(451)		(380)		-		(189)		-		(1,025)
Recoveries		31		155		10		142		69		-		407
Total ending allowance balance	$	3,076	$	4,404	$	6,730	$	1,982	$	372	$	68	$	16,632
Ending allowance balance attributable to loans
Individually evaluated for impairment	$	1,545	$	803	$	1,224	$	1,001	$	-	$	-	$	4,573
Collectively evaluated for impairment		1,531		3,601		5,506		981		372		68		12,059
Total ending allowance balance	$	3,076	$	4,404	$	6,730	$	1,982	$	372	$	68	$	16,632
Loans
Loans individually evaluated for impairment	$	5,152	$	7,106	$	14,522	$	2,801	$	-	$	-	$	29,581
Loans collectively evaluated for impairment		216,178		268,832		548,610		96,693		15,978		26,898		1,173,189
Total ending loans balance	$	221,330	$	275,938	$	563,132	$	99,494	$	15,978	$	26,898	$	1,202,770

					Non
			Residential		Residential						Municipal
September 30, 2012	Commercial		Real estate		Real estate		Construction		Consumer		Obligations		Total
Allowance for loan losses
Beginning balance	$	2,159	$	3,786	$	6,666	$	5,167	$	392	$	176	$	18,346
Provision for loan losses		(215)		2,095		875		(729)		325		(151)		2,200
Loans charged off		(89)		(1,051)		(436)		(2,292)		(371)		-		(4,239)
Recoveries		18		3		183		2		72		-		278
Total ending allowance balance	$	1,873	$	4,833	$	7,288	$	2,148	$	418	$	25	$	16,585

The following tables present the activity in the allowance for loan losses for the nine months ending September 30, 2013 and 2012, and the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2013 and December 31, 2012 (in thousands):

					Non
			Residential		Residential						Municipal
September 30, 2013	Commercial		Real estate		Real estate		Construction		Consumer		Obligations		Total
Allowance for loan losses
Beginning balance	$	2,716	$	4,272	$	6,991	$	1,964	$	584	$	41	$	16,568
Provision for loan losses		874		1,931		1,305		(139)		202		27		4,200
Loans charged off		(582)		(1,998)		(1,639)		(234)		(630)		-		(5,083)
Recoveries		68		199		73		391		216		-		947
Total ending allowance balance	$	3,076	$	4,404	$	6,730	$	1,982	$	372	$	68	$	16,632

					Non
			Residential		Residential						Municipal
September 30, 2012	Commercial		Real estate		Real estate		Construction		Consumer		Obligations		Total
Allowance for loan losses
Beginning balance	$	3,207	$	2,591	$	7,614	$	4,701	$	162	$	13	$	18,288
Provision for loan losses		(892)		3,782		1,095		977		726		12		5,700
Loans charged off		(461)		(1,573)		(1,609)		(3,538)		(696)		-		(7,877)
Recoveries		19		33		188		8		226		-		474
Total ending allowance balance	$	1,873	$	4,833	$	7,288	$	2,148	$	418	$	25	$	16,585

					Non
			Residential		Residential						Municipal
December 31, 2012	Commercial		Real estate		Real estate		Construction		Consumer		Obligations		Total
Ending allowance balance attributable to loans
Individually evaluated for impairment	$	1,266	$	970	$	2,540	$	1,369	$	120	$	-	$	6,265
Collectively evaluated for impairment		1,450		3,302		4,451		595		464		41		10,303
	$	2,716	$	4,272	$	6,991	$	1,964	$	584	$	41	$	16,568
Loans
Loans individually evaluated for impairment	$	1,840	$	8,666	$	18,076	$	5,154	$	120	$	-	$	33,856
Loans collectively evaluated for impairment		199,544		269,620		555,025		99,344		16,327		23,128		1,162,988
Total ending loans balance	$	201,384	$	278,286	$	573,101	$	104,498	$	16,447	$	23,128	$	1,196,844

Individually Impaired Loans by Class of Loans

The following table presents individually impaired loans by class of loans as of and for the three months ended September 30, 2013 (in thousands):

	Unpaid				Allowance for		Average		Interest
	Principal		Recorded		Loan Losses		Recorded		Income		Interest
	Balance		Investment		Allocated		Investment		Recognized		Received
With no related allowance recorded
Commercial	$	111	$	111	$	-	$	141	$	-	$	-
Residential real estate
Home equity lines of credit		-		-		-		17		-		-
Multifamily properties		1,319		969		-		485		-		-
Other		1,163		1,052		-		1,642		-		-
Nonresidential real estate
Owner occupied properties		1,293		1,165		-		772		-		-
Non owner occupied properties		4,534		4,296		-		4,428		-		-
Construction		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
With an allowance recorded
Commercial		5,041		5,041		1,545		3,784		57		52
Residential real estate
Home equity lines of credit		388		373		155		356		3		3
Multifamily properties		-		-		-		485		0		0
Other		5,188		4,712		648		4,671		20		19
Nonresidential real estate
Owner occupied properties		7,479		6,350		1,014		7,749		2		2
Non owner occupied properties		3,264		2,711		210		2,652		34		34
Construction		3,004		2,801		1,001		2,879		28		28
Consumer		-		-		-		-		-		-
Total	$	32,784	$	29,581	$	4,573	$	30,061	$	144	$	138

The following table presents individually impaired loans by class of loans as of and for the three months ended September 30, 2012 (in thousands):

	Unpaid				Allowance for		Average		Interest
	Principal		Recorded		Loan Losses		Recorded		Income		Interest
	Balance		Investment		Allocated		Investment		Recognized		Received
With no related allowance recorded
Commercial	$	30	$	30	$	-	$	170	$	-	$	-
Residential real estate
Home equity lines of credit		50		50		-		50		-		-
Multifamily properties		379		48		-		24		-		-
Other		2,869		2,626		-		2,336		-		-
Nonresidential real estate
Owner occupied properties		802		792		-		490		-		-
Non owner occupied properties		6,206		5,701		-		3,797		-		-
Construction		809		509		-		432		-		-
With an allowance recorded
Commercial		1,088		1,088		317		823		4		4
Residential real estate
Home equity lines of credit		1,488		1,488		1,341		813		12		12
Multifamily properties		1,324		1,324		243		1,554		11		11
Other		3,109		2,964		145		3,309		31		24
Nonresidential real estate
Owner occupied properties		8,544		8,543		2,651		8,774		81		81
Non owner occupied properties		4,595		4,074		342		6,449		34		34
Construction		6,387		5,266		1,215		6,494		45		45
Total	$	37,680	$	34,503	$	6,254	$	35,515	$	218	$	211

The following table presents individually impaired loans by class of loans as of and for the nine months ended September 30, 2013 (in thousands):

	Unpaid				Allowance for		Average		Interest
	Principal		Recorded		Loan Losses		Recorded		Income		Interest
	Balance		Investment		Allocated		Investment		Recognized		Received
With no related allowance recorded
Commercial	$	111	$	111	$	-	$	138	$	-	$	-
Residential real estate
Home equity lines of credit		-		-		-		20		-		-
Multifamily properties		1,319		969		-		485		-		-
Other		1,163		1,052		-		1,902		-		-
Nonresidential real estate
Owner occupied properties		1,293		1,165		-		2,450		-		-
Non owner occupied properties		4,534		4,296		-		4,359		-		-
Construction		-		-		-		514		-		-
Consumer		-		-		-		-		-		-
With an allowance recorded
Commercial		5,041		5,041		1,545		2,623		91		80
Residential real estate
Home equity lines of credit		388		373		155		475		9		9
Multifamily properties		-		-		-		543		8		8
Other		5,188		4,712		648		5,177		61		58
Nonresidential real estate
Owner occupied properties		7,479		6,350		1,014		6,204		13		10
Non owner occupied properties		3,264		2,711		210		3,734		109		102
Construction		3,004		2,801		1,001		3,421		93		76
Consumer		-		-		-		20		-		-
Total	$	32,784	$	29,581	$	4,573	$	32,065	$	384	$	343

The following table presents individually impaired loans by class of loans as of, and for the nine months ended September 30, 2012 (in thousands):

	Average Recorded Investment		Interest Income Recognized		Interest Received
With no related allowance recorded
Commercial	$	263	$	-	$	-
Residential real estate
Home equity lines of credit		50		-		-
Multifamily properties		273		-		-
Other		2,094		-		-
Nonresidential real estate
Owner occupied properties		698		-		-
Non owner occupied properties		2,848		-		-
Construction		256		-		-
With an allowance recorded
Commercial		950		7		5
Residential real estate
Home equity lines of credit		339		12		12
Multifamily properties		815		22		22
Other		3,557		76		64
Nonresidential real estate
Owner occupied properties		9,081		239		237
Non owner occupied properties		7,406		143		106
Construction		8,017		163		155
Total	$	36,647	$	662	$	601

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2012 (in thousands):

	Unpaid				Allowance for
	Principal		Recorded		Loan Losses
	Balance		Investment		Allocated
With no related allowance recorded
Commercial	$	28	$	28	$	-
Residential real estate
Home equity lines of credit		50		50		-
Multifamily properties		-		-		-
Other		1,922		1,679		-
Nonresidential real estate
Owner occupied properties		-		-		-
Non owner occupied properties		5,056		4,551		-
Construction		-		-		-
Consumer		-		-		-
With an allowance recorded
Commercial		1,812		1,812		1,266
Residential real estate
Home equity lines of credit		766		566		212
Multifamily properties		1,320		1,320		248
Other		5,196		5,051		510
Nonresidential real estate
Owner occupied properties		9,142		8,190		1,644
Non owner occupied properties		5,876		5,335		896
Construction		6,274		5,154		1,369
Consumer		120		120		120
Total	$	37,562	$	33,856	$	6,265

Aging of Recorded Investment in Past Due Loans by Class of Loans

The following table presents the aging of the recorded investment in past due loans by class of loans as of September 30, 2013 and December 31, 2012 (in thousands):

	Loans		Loans over
	30-90 days		90 days				Loans not
	past due		past due		Nonaccrual		past due		Total
September 30, 2013
Commercial	$	299	$	-	$	345	$	220,686	$	221,330
Residential real estate
Home equity lines of credit		388		5		393		97,327		98,113
Multifamily properties		-		-		-		52,901		52,901
Other residential real estate		1,222		114		5,104		118,484		124,924
Nonresidential real estate
Owner occupied properties		1,204		-		6,851		275,079		283,134
Non owner occupied properties		461		-		2,892		276,645		279,998
Construction		14		-		605		98,875		99,494
Consumer
Credit card balances		17		88		-		6,904		7,009
Other consumer		1		-		7		8,961		8,969
Municipal obligations		-		-		-		26,898		26,898
Total	$	3,606	$	207	$	16,197	$	1,182,760	$	1,202,770

	Loans		Loans over
	30-90 days		90 days				Loans not
	past due		past due		Nonaccrual		past due		Total
December 31, 2012
Commercial	$	1,668	$	-	$	740	$	198,976	$	201,384
Residential real estate
Home equity lines of credit		476		-		775		98,806		100,057
Multifamily properties		-		-		-		48,558		48,558
Other residential real estate		6,615		17		4,468		118,571		129,671
Nonresidential real estate
Owner occupied properties		2,809		-		7,000		278,362		288,171
Non owner occupied properties		2,788		-		5,138		277,004		284,930
Construction		738		-		1,075		102,685		104,498
Consumer
Credit card balances		32		22		-		6,905		6,959
Other consumer		5		-		48		9,435		9,488
Municipal obligations		-		-		-		23,128		23,128
Total	$	15,131	$	39	$	19,244	$	1,162,430	$	1,196,844

Loans by Class Modified as Troubled Debt Restructurings

The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ended September 30, 2013 and 2012 (dollars in thousands):

	2013						2012
	Number Of Loans		Pre- Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number Of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial		1	$	19	$	19		1	$	32	$	30
Residential real estate
Home equity lines of credit		-		-		-		-		-		-
Multifamily properties		-		-		-		-		-		-
Other residential real estate		1		21		20		-		-		-
Nonresidential real estate
Owner occupied properties		-		-		-		-		-		-
Non owner occupied properties		-		-		-		-		-		-
Construction		-		-		-		-		-		-
Consumer
Credit card balances		-		-		-		-		-		-
Other consumer		-		-		-		-		-		-
Municipal obligations		-		-		-		-		-		-
Total		2	$	40	$	39		1	$	32	$	30

The following table presents loans by class modified as troubled debt restructurings that occurred during nine months ended September 30, 2013 and 2012 (dollars in thousands):

	2013						2012
	Number Of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number Of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial		3	$	190	$	128		2	$	190	$	184
Residential real estate
Home equity lines of credit		-		-		-		-		-		-
Multifamily properties		1		970		969		1		485		48
Other residential real estate		2		512		511		1		187		186
Nonresidential real estate
Owner occupied properties		-		-		-		1		154		154
Non owner occupied properties		2		970		938		-		-		-
Construction		-		-		-		5		3,205		2,958
Consumer
Credit card balances		-		-		-		-		-		-
Other consumer		-		-		-		-		-		-
Municipal obligations		-		-		-		-		-		-
Total		8	$	2,642	$	2,546		10	$	4,221	$	3,530

Loans by Class Modified as Troubled Debt Restructurings for which there was Payment Default within Twelve Months Following Modification

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the third quarter ending September 30, 2013.

(dollars in thousands)

Troubled Debt Restructurings
That Subsequently Defaulted:	Number of Loans		Recorded Investment
Commercial		1	$	15
Residential real estate
Home equity lines of credit
Multifamily properties		-		-
Other residential real estate		-		-
Nonresidential real estate
Owner occupied properties		-		-
Non owner occupied properties		-		-
Construction		-		-
Consumer
Credit card balances
Other consumer
Municipal obligations		-		-
Total		1	$	15

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification for the nine months ending September 30, 2013.

(dollars in thousands)

Troubled Debt Restructurings
That Subsequently Defaulted:	Number of Loans		Recorded Investment
Commercial		3	$	180
Residential real estate
Home equity lines of credit
Multifamily properties		1		970
Other residential real estate		-		-
Nonresidential real estate
Owner occupied properties		1		150
Non owner occupied properties		3		3,136
Construction		4		1,542
Consumer
Credit card balances
Other consumer
Municipal obligations		-		-
Total		12	$	5,978

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the third quarter ending September 30, 2012.

(dollars in thousands)

Troubled Debt Restructurings
That Subsequently Defaulted:	Number of Loans		Recorded Investment
Commercial		-	$	0
Residential real estate
Home equity lines of credit		-		-
Multifamily properties		-		-
Other residential real estate		-		-
Nonresidential real estate
Owner occupied properties		-		-
Non owner occupied properties		-		-
Construction		1		659
Consumer
Credit card balances		-		-
Other consumer		-		-
Municipal obligations		-		-
Total		1	$	659

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the nine months ending September 30, 2012.

(dollars in thousands)

Troubled Debt Restructurings
That Subsequently Defaulted:	Number of Loans		Recorded Investment
Commercial		1	$	154
Residential real estate
Home equity lines of credit
Multifamily properties		1		48
Other residential real estate		-		-
Nonresidential real estate
Owner occupied properties		-		-
Non owner occupied properties		2		2,954
Construction		3		3,625
Consumer
Credit card balances		-		-
Other consumer		-		-
Municipal obligations		-		-
Total		7	$	6,781

Risk Category of Loans by Class of Loans

Based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):

			Special
	Pass		Mention		Substandard		Doubtful		Not Rated(1)		Total
September 30, 2013
Commercial	$	208,695	$	4,551	$	8,084	$	-	$	-	$	221,330
Residential real estate
Home equity lines of credit		11,944		881		1,149		-		84,139		98,113
Multifamily properties		50,447		-		2,454		-		-		52,901
Other residential real estate		34,698		4,241		8,285		-		77,700		124,924
Nonresidential real estate
Owner occupied properties		254,588		6,196		22,350		-		-		283,134
Non owner occupied properties		266,407		5,057		8,534		-		-		279,998
Construction		87,432		8,766		3,296		-		-		99,494
Consumer
Credit card balances		-		-		-		-		7,009		7,009
Other consumer		-		-		6		-		8,963		8,969
Municipal obligations		26,898		-		-		-		-		26,898
Total	$	941,109	$	29,692	$	54,158	$	-	$	177,811	$	1,202,770

(1) Not rated loans represent the homogenous pools risk category.

			Special
	Pass		Mention		Substandard		Doubtful		Not Rated(1)		Total
December 31, 2012
Commercial	$	188,686	$	8,469	$	4,229	$	-	$	-	$	201,384
Residential real estate
Home equity lines of credit		10,840		999		1,388		-		86,830		100,057
Multifamily properties		45,329		99		3,130		-		-		48,558
Other residential real estate		35,922		1,146		10,477		-		82,126		129,671
Nonresidential real estate
Owner occupied properties		258,816		13,648		15,707		-		-		288,171
Non owner occupied properties		264,442		8,098		12,390		-		-		284,930
Construction		96,154		2,264		6,080		-		-		104,498
Consumer
Credit card balances		-		-		-		-		6,959		6,959
Other consumer		-		-		141		-		9,347		9,488
Municipal obligations		23,128		-		-		-		-		23,128
Total	$	923,317	$	34,723	$	53,542	$	-	$	185,262	$	1,196,844

(1) Not rated loans represent the homogenous pools risk category

XML

Fair Value (Assets and Liabilities Measured at Fair Value on Recurring Basis) (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Assets
Investment securities available-for-sale	$ 310,558	$ 314,444
Derivatives	1,760	1,926
Total	312,318	316,370
Liabilities
Derivatives	1,760	1,926
Total	1,760	1,926
U.S. Government, federal agencies and Government sponsored enterprises
Assets
Investment securities available-for-sale	119,029	128,477
U.S. Government mortgage-backed
Assets
Investment securities available-for-sale	190,534	184,907
Corporate
Assets
Investment securities available-for-sale	995	1,060
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets
Derivatives	0	0
Total	0	0
Liabilities
Derivatives	0	0
Total	0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | U.S. Government, federal agencies and Government sponsored enterprises
Assets
Investment securities available-for-sale	0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | U.S. Government mortgage-backed
Assets
Investment securities available-for-sale	0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Corporate
Assets
Investment securities available-for-sale	0	0
Significant Other Observable Inputs (Level 2) [Member]
Assets
Derivatives	1,760	1,926
Total	311,323	315,310
Liabilities
Derivatives	1,760	1,926
Total	1,760	1,926
Significant Other Observable Inputs (Level 2) [Member] | U.S. Government, federal agencies and Government sponsored enterprises
Assets
Investment securities available-for-sale	119,029	128,477
Significant Other Observable Inputs (Level 2) [Member] | U.S. Government mortgage-backed
Assets
Investment securities available-for-sale	190,534	184,907
Significant Other Observable Inputs (Level 2) [Member] | Corporate
Assets
Investment securities available-for-sale	0	0
Significant Unobservable Inputs (Level 3) [Member]
Assets
Derivatives	0	0
Total	995	1,060
Liabilities
Derivatives	0	0
Total	0	0
Significant Unobservable Inputs (Level 3) [Member] | U.S. Government, federal agencies and Government sponsored enterprises
Assets
Investment securities available-for-sale	0	0
Significant Unobservable Inputs (Level 3) [Member] | U.S. Government mortgage-backed
Assets
Investment securities available-for-sale	0	0
Significant Unobservable Inputs (Level 3) [Member] | Corporate
Assets
Investment securities available-for-sale	$ 995	$ 1,060

XML

Loans (Aging of Recorded Investment in Past Due Loans by Class of Loans) (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans 30-90 days past due	$ 3,606	$ 15,131
Loans over 90 days past due	207	39
Nonaccrual	16,197	19,244
Loans not past due	1,182,760	1,162,430
Total ending loans balance	1,202,770	1,196,844
Commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans 30-90 days past due	299	1,668
Loans over 90 days past due	0	0
Nonaccrual	345	740
Loans not past due	220,686	198,976
Total ending loans balance	221,330	201,384
Residential Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total ending loans balance	275,938	278,286
Residential Real Estate [Member] | Home Equity Line of Credit [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans 30-90 days past due	388	476
Loans over 90 days past due	5	0
Nonaccrual	393	775
Loans not past due	97,327	98,806
Total ending loans balance	98,113	100,057
Residential Real Estate [Member] | Multi Family [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans 30-90 days past due	0	0
Loans over 90 days past due	0	0
Nonaccrual	0	0
Loans not past due	52,901	48,558
Total ending loans balance	52,901	48,558
Residential Real Estate [Member] | Residential Real Estate Other Financing Receivable [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans 30-90 days past due	1,222	6,615
Loans over 90 days past due	114	17
Nonaccrual	5,104	4,468
Loans not past due	118,484	118,571
Total ending loans balance	124,924	129,671
Non Residential Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total ending loans balance	563,132	573,101
Non Residential Real Estate [Member] | Owner occupied properties
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans 30-90 days past due	1,204	2,809
Loans over 90 days past due	0	0
Nonaccrual	6,851	7,000
Loans not past due	275,079	278,362
Total ending loans balance	283,134	288,171
Non Residential Real Estate [Member] | Commercial Mortgage Loans, Non Owner Occupied [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans 30-90 days past due	461	2,788
Loans over 90 days past due	0	0
Nonaccrual	2,892	5,138
Loans not past due	276,645	277,004
Total ending loans balance	279,998	284,930
Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans 30-90 days past due	14	738
Loans over 90 days past due	0	0
Nonaccrual	605	1,075
Loans not past due	98,875	102,685
Total ending loans balance	99,494	104,498
Consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total ending loans balance	15,978	16,447
Consumer [Member] | Consumer Credit Card Financing Receivable [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans 30-90 days past due	17	32
Loans over 90 days past due	88	22
Nonaccrual	0	0
Loans not past due	6,904	6,905
Total ending loans balance	7,009	6,959
Consumer [Member] | Consumer Other Financing Receivable [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans 30-90 days past due	1	5
Loans over 90 days past due	0	0
Nonaccrual	7	48
Loans not past due	8,961	9,435
Total ending loans balance	8,969	9,488
Municipal Obligations [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans 30-90 days past due	0	0
Loans over 90 days past due	0	0
Nonaccrual	0	0
Loans not past due	26,898	23,128
Total ending loans balance	$ 26,898	$ 23,128

XML

Securities (Additional Information) (Detail) (USD $)	9 Months Ended
	Sep. 30, 2013 Securities	Sep. 30, 2012	Dec. 31, 2012
Investment [Line Items]
Proceeds from sale of available-for-sale securities	$ 5,230,000	$ 6,944,000
Gains from sale of available-for-sale securities	274,000	203,000
Number of securities in portfolio	250
Number of securities in unrealized loss position	84
Total Unrealized Loss	5,994,000
Mortgage-backed securities issued by U.S. government sponsored entities	100.00%
Carrying value of securities pledged to secure public deposits and repurchase agreements	$ 371,078		$ 368,504

XML

Loans (Loan Balances) (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	$ 1,202,770	$ 1,196,844
Less: Deferred loan origination fees and discount	(1,577)	(1,435)
Allowance for loan losses	(16,632)	(16,568)
Net loans	1,184,561	1,178,841
Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	221,330	201,384
Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	275,938	278,286
Non Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	563,132	573,101
Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	99,494	104,498
Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	15,978	16,447
Municipal Obligations [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	$ 26,898	$ 23,128

XML

Cash and Cash Equivalents

9 Months Ended

Sep. 30, 2013

Cash and Cash Equivalents [Abstract]

Cash and Cash Equivalents

Note 5 – Cash and Cash Equivalents:

Cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold and investments in money market mutual funds. The Company reports net cash flows for customer loan and deposit transactions, interest-bearing balances with banks and short-term borrowings with maturities of 90 days or less.

XML

Cash and Cash Equivalents (Additional Information) (Detail)	9 Months Ended
	Sep. 30, 2013
Cash and Cash Equivalents [Line Items]
Cash Equivalents Maturity Period	90 days

XML

Loans (Risk Category of Loans by Class of Loans) (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013		Dec. 31, 2012
Financing Receivable, Recorded Investment [Line Items]
Gross loans	$ 1,202,770		$ 1,196,844
Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	221,330		201,384
Residential Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	275,938		278,286
Residential Real Estate [Member] | Home Equity Line of Credit [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	98,113		100,057
Residential Real Estate [Member] | Multi Family [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	52,901		48,558
Residential Real Estate [Member] | Residential Real Estate Other Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	124,924		129,671
Non Residential Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	563,132		573,101
Non Residential Real Estate [Member] | Owner occupied properties
Financing Receivable, Recorded Investment [Line Items]
Gross loans	283,134		288,171
Non Residential Real Estate [Member] | Commercial Mortgage Loans, Non Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	279,998		284,930
Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	99,494		104,498
Consumer [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	15,978		16,447
Consumer [Member] | Consumer Credit Card Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	7,009		6,959
Consumer [Member] | Consumer Other Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	8,969		9,488
Municipal Obligations [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	26,898		23,128
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	941,109		923,317
Pass [Member] | Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	208,695		188,686
Pass [Member] | Residential Real Estate [Member] | Home Equity Line of Credit [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	11,944		10,840
Pass [Member] | Residential Real Estate [Member] | Multi Family [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	50,447		45,329
Pass [Member] | Residential Real Estate [Member] | Residential Real Estate Other Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	34,698		35,922
Pass [Member] | Non Residential Real Estate [Member] | Owner occupied properties
Financing Receivable, Recorded Investment [Line Items]
Gross loans	254,588		258,816
Pass [Member] | Non Residential Real Estate [Member] | Commercial Mortgage Loans, Non Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	266,407		264,442
Pass [Member] | Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	87,432		96,154
Pass [Member] | Consumer [Member] | Consumer Credit Card Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0		0
Pass [Member] | Consumer [Member] | Consumer Other Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0		0
Pass [Member] | Municipal Obligations [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	26,898		23,128
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	29,692		34,723
Special Mention [Member] | Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	4,551		8,469
Special Mention [Member] | Residential Real Estate [Member] | Home Equity Line of Credit [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	881		999
Special Mention [Member] | Residential Real Estate [Member] | Multi Family [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0		99
Special Mention [Member] | Residential Real Estate [Member] | Residential Real Estate Other Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	4,241		1,146
Special Mention [Member] | Non Residential Real Estate [Member] | Owner occupied properties
Financing Receivable, Recorded Investment [Line Items]
Gross loans	6,196		13,648
Special Mention [Member] | Non Residential Real Estate [Member] | Commercial Mortgage Loans, Non Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	5,057		8,098
Special Mention [Member] | Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	8,766		2,264
Special Mention [Member] | Consumer [Member] | Consumer Credit Card Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0		0
Special Mention [Member] | Consumer [Member] | Consumer Other Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0		0
Special Mention [Member] | Municipal Obligations [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0		0
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	54,158		53,542
Substandard [Member] | Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	8,084		4,229
Substandard [Member] | Residential Real Estate [Member] | Home Equity Line of Credit [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	1,149		1,388
Substandard [Member] | Residential Real Estate [Member] | Multi Family [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	2,454		3,130
Substandard [Member] | Residential Real Estate [Member] | Residential Real Estate Other Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	8,285		10,477
Substandard [Member] | Non Residential Real Estate [Member] | Owner occupied properties
Financing Receivable, Recorded Investment [Line Items]
Gross loans	22,350		15,707
Substandard [Member] | Non Residential Real Estate [Member] | Commercial Mortgage Loans, Non Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	8,534		12,390
Substandard [Member] | Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	3,296		6,080
Substandard [Member] | Consumer [Member] | Consumer Credit Card Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0		0
Substandard [Member] | Consumer [Member] | Consumer Other Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	6		141
Substandard [Member] | Municipal Obligations [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0		0
Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0		0
Doubtful [Member] | Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0		0
Doubtful [Member] | Residential Real Estate [Member] | Home Equity Line of Credit [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0		0
Doubtful [Member] | Residential Real Estate [Member] | Multi Family [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0		0
Doubtful [Member] | Residential Real Estate [Member] | Residential Real Estate Other Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0		0
Doubtful [Member] | Non Residential Real Estate [Member] | Owner occupied properties
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0		0
Doubtful [Member] | Non Residential Real Estate [Member] | Commercial Mortgage Loans, Non Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0		0
Doubtful [Member] | Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0		0
Doubtful [Member] | Consumer [Member] | Consumer Credit Card Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0		0
Doubtful [Member] | Consumer [Member] | Consumer Other Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0		0
Doubtful [Member] | Municipal Obligations [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0		0
Not Rated [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	177,811	[1]	185,262	[1]
Not Rated [Member] | Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0	[1]	0	[1]
Not Rated [Member] | Residential Real Estate [Member] | Home Equity Line of Credit [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	84,139	[1]	86,830	[1]
Not Rated [Member] | Residential Real Estate [Member] | Multi Family [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0	[1]	0	[1]
Not Rated [Member] | Residential Real Estate [Member] | Residential Real Estate Other Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	77,700	[1]	82,126	[1]
Not Rated [Member] | Non Residential Real Estate [Member] | Owner occupied properties
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0	[1]	0	[1]
Not Rated [Member] | Non Residential Real Estate [Member] | Commercial Mortgage Loans, Non Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0	[1]	0	[1]
Not Rated [Member] | Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0	[1]	0	[1]
Not Rated [Member] | Consumer [Member] | Consumer Credit Card Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	7,009	[1]	6,959	[1]
Not Rated [Member] | Consumer [Member] | Consumer Other Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	8,963	[1]	9,347	[1]
Not Rated [Member] | Municipal Obligations [Member]
Financing Receivable, Recorded Investment [Line Items]
Gross loans	$ 0	[1]	$ 0	[1]

[1] Not rated loans represent the homogenous pools risk category.

XML

Securities

9 Months Ended

Sep. 30, 2013

Investments, Debt and Equity Securities [Abstract]

Securities

Note 8–Securities:

The fair value of available-for-sale securities and the related gains and losses recognized in accumulated other comprehensive income (loss) was as follows (in thousands):

			Gross		Gross
Available-for-Sale	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
September 30, 2013
U.S. government, federal agencies and government      sponsored enterprises	$	121,162	$	223	$	(2,356)	$	119,029
U.S. government residential mortgage-backed		189,663		2,781		(1,910)		190,534
Corporate		995		-		-		995
	$	311,820	$	3,004	$	(4,266)	$	310,558

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
December 31, 2012
U.S. government, federal agencies and government      sponsored enterprises	$	127,416	$	1,130	$	(69)	$	128,477
U.S. government residential mortgage-backed		180,019		4,972		(84)		184,907
Corporate		1,060		-		-		1,060
	$	308,495	$	6,102	$	(153)	$	314,444

The carrying amount, unrecognized gains and losses, and fair value of securities held-to-maturity were as follows (in thousands):

			Gross		Gross
Held-to-Maturity	Amortized		Unrecognized		Unrecognized		Fair
	Cost		Gains		Losses		Value
September 30, 2013
Municipal and other obligations	$	78,371	$	1,096	$	(1,728)	$	77,739
December 31, 2012
Municipal and other obligations	$	66,843	$	1,900	$	(239)	$	68,504

The amortized cost and fair value of debt securities and carrying amount, if different, at September 30, 2013 by contractual maturity were as follows (in thousands), with securities not due at a single maturity date, primarily mortgage-backed securities, shown separately.

	Available-for-Sale				Held-to-Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due in one year or less	$	3,238	$	3,277	$	3,198	$	3,214
Due after one year through five years		41,404		41,316		32,269		32,842
Due after five years through ten years		76,520		74,436		37,324		36,103
Due after ten years		995		995		5,580		5,580
U.S. government agency mortgage-backed		189,663		190,534		-		-
	$	311,820	$	310,558	$	78,371	$	77,739

Proceeds on the sale of $5,230,000 of available-for-sale securities resulted in gains of $274,000 for the first nine months of 2013 and no securities were sold in the third quarter. No securities were sold with losses in the first nine months of 2013. $6,944,000 of available-for-sale securities were sold resulting in gains of $203,000 for the first nine months of 2012, with no losses.

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. Investment securities classified as available-for-sale or held-to-maturity are evaluated for OTTI under ASC 320, Accounting for Certain Investments in Debt and Equity Securities.

In determining OTTI, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss. If an entity intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. Otherwise, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors shall be recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings shall become the new amortized cost basis of the investment.

As of September 30, 2013, the Bank’s security portfolio consisted of 250 securities, 84 of which were in an unrealized loss position of $5,994,000. There was no OTTI of securities at September 30, 2013. Unrealized losses have not been recognized into income because the issuers’ bonds are of high credit quality (U.S. government agencies and government sponsored enterprises and “A” rated or better Kentucky municipalities), management does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery. The recent increase in unrealized losses is attributable to the shift in interest rates and not credit related.

Mortgage-backed Securities

At September 30, 2013, 100% of the mortgage-backed securities held by the Bank were issued by U.S. government sponsored entities and agencies, primarily Fannie Mae and Freddie Mac, institutions which the government has affirmed its commitment to support. Because a decline in market value would be attributable to changes in interest rates and illiquidity, and not credit quality, and because the Bank does not have the intent to sell these mortgage-backed securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Bank does not consider these securities to be other than temporarily impaired at September 30, 2013.

At September 30, 2013 and December 31, 2012, securities with a carrying value of $371,078 and $368,504 were pledged to secure public deposits and repurchase agreements.

Securities with unrealized losses at September 30, 2013 and December 31, 2012, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (in thousands):

Available for Sale:	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Loss		Value		Loss		Value		Loss
September 30, 2013
U.S. government, federal agencies and      government sponsored enterprises	$	89,115	$	(2,356)	$	-	$	-	$	89,115	$	(2,356)
U.S government residential mortgage-backed		90,533		(1,910)		-		-		90,533		(1,910)
Total temporarily impaired	$	179,648	$	(4,266)	$	-	$	-	$	179,648	$	(4,266)

Held to Maturity:	Less than 12 Months				12 Months or More				Total
	Fair		Unrecognized		Fair		Unrecognized		Fair		Unrecognized
Description of Securities	Value		Loss		Value		Loss		Value		Loss
September 30, 2013
Municipal & other obligations		34,397		(1,620)		5,403		(108)		39,800		(1,728)
Total temporarily impaired	$	34,397	$	(1,620)	$	5,403	$	(108)	$	39,800	$	(1,728)

Available for Sale:	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Loss		Value		Loss		Value		Loss
December 31, 2012
U.S. government, federal agencies and      government sponsored enterprises	$	11,877	$	(69)	$	-	$	-	$	11,877	$	(69)
U.S government residential mortgage-backed		18,142		(84)		-		-		18,142		(84)
Total temporarily impaired	$	30,019	$	(153)	$	-	$	-	$	30,019	$	(153)

Held to Maturity:	Less than 12 Months				12 Months or More				Total
	Fair		Unrecognized		Fair		Unrecognized		Fair		Unrecognized
Description of Securities	Value		Loss		Value		Loss		Value		Loss
December 31, 2012
Municipal & other obligations		15,056		(239)		-		-		15,056		(239)
Total temporarily impaired	$	15,056	$	(239)	$	-	$	-	$	15,056	$	(239)

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Stock-Based Compensation

9 Months Ended

Sep. 30, 2013

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

Stock-Based Compensation

Note 4 – Stock-Based Compensation:

Stock-based compensation in the form of options to buy stock and restricted stock units (“RSUs”) are granted to directors, officers and employees under the Company’s incentive stock plan (the “Plan”), which provides for the issuance of up to 1,000,000 shares.

Stock Options

The specific terms of each option agreement are determined by the Compensation Committee at the date of the grant. For current options outstanding, options granted to directors vest immediately and options granted to employees generally vest evenly over a five-year period.

The Company recorded stock option expense of $12,000 (net of taxes) and $38,000 (net of taxes) in the three and nine months ended September 30, 2013, respectively, and $24,000 (net of taxes) and $76,000 (net of taxes) in the three and nine months ended September 30, 2012, respectively.

Restricted Stock Units (RSUs)

The specific terms of each RSU award are determined by the Compensation Committee at the date of the grant. Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at issue date. The fair value of the stock was determined using the total number of RSUs granted multiplied by the grant date fair market value of a share of company stock. RSU’s fully vest on the first anniversary of the grant date.

A summary of changes in the Company’s non-vested shares for the three and nine months ended September 30, 2013 is as follows.

			Weighted-Average
Three months ended September 30, 2013			Grant-Date
Nonvested Shares	Shares		Fair Value
Non-vested at July 1, 2013		14,476	$	26.24
Granted		-		-
Vested		-		-
Forfeited		453		26.49
Non-vested at September 30, 2013		14,023	$	26.38

			Weighted-Average
Nine months ended September 30, 2013			Grant-Date
Nonvested Shares	Shares		Fair Value
Non-vested at January 1, 2013		4,185	$	25.80
Granted		14,476		26.39
Vested		4,185		25.80
Forfeited		453		26.49
Non-vested at September 30, 2013		14,023	$	26.38

The Company recorded RSU expense of $96,000 and $291,000 for the three and nine months ended September 30, 2013 and $36,000 for the three and nine months ended September 30 2012.  As of September 30, 2013, there was $154,000 of total unrecognized compensation cost related to non-vested shares granted under the Plan. The cost is expected to be recognized over a period of ten months.

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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Parenthetical)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Stock Activity, shares	30,604	1,555	58,382	34,401

XML

Fair Value (Assets and Liabilities Measured at Fair Value on Non-Recurring Basis) (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Assets
Impaired loans	$ 1,192,268	$ 1,182,273
Fair Value, Measurements, Nonrecurring [Member]
Assets
Impaired loans	17,942	21,383
Fair Value, Measurements, Nonrecurring [Member] | Commercial [Member]
Assets
Impaired loans	3,393	546
Fair Value, Measurements, Nonrecurring [Member] | Non Residential [Member]
Assets
Impaired loans	3,250
Fair Value, Measurements, Nonrecurring [Member] | Non Residential [Member] | Other Real Estate Owned [Member]
Assets
Impaired loans		2,683
Fair Value, Measurements, Nonrecurring [Member] | Construction [Member]
Assets
Impaired loans	796	2,657
Fair Value, Measurements, Nonrecurring [Member] | Owner Occupied Properties [Member]
Assets
Impaired loans	5,157	6,346
Fair Value, Measurements, Nonrecurring [Member] | Non Owner Occupied Properties [Member]
Assets
Impaired loans	869	2,788
Fair Value, Measurements, Nonrecurring [Member] | Home Equity Line of Credit [Member] | Residential Real Estate [Member]
Assets
Impaired loans	218	354
Fair Value, Measurements, Nonrecurring [Member] | Multifamily properties [Member] | Residential Real Estate [Member]
Assets
Impaired loans	0	1,072
Fair Value, Measurements, Nonrecurring [Member] | Residential [Member]
Assets
Impaired loans	195
Fair Value, Measurements, Nonrecurring [Member] | Residential [Member] | Other Real Estate Owned [Member]
Assets
Impaired loans		396
Fair Value, Measurements, Nonrecurring [Member] | Other [Member] | Residential Real Estate [Member]
Assets
Impaired loans	4,064	4,541
Fair Value, Measurements, Nonrecurring [Member] | Non - Residential Real Estate [Member]
Assets
Impaired loans	0	0
Fair Value, Measurements, Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets
Impaired loans	0	0
Fair Value, Measurements, Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Other Real Estate Owned [Member]
Assets
Impaired loans	0
Fair Value, Measurements, Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Commercial [Member]
Assets
Impaired loans		0
Fair Value, Measurements, Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Non Residential [Member]
Assets
Impaired loans	0
Fair Value, Measurements, Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Non Residential [Member] | Other Real Estate Owned [Member]
Assets
Impaired loans		0
Fair Value, Measurements, Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Construction [Member]
Assets
Impaired loans	0	0
Fair Value, Measurements, Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Owner Occupied Properties [Member]
Assets
Impaired loans	0	0
Fair Value, Measurements, Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Non Owner Occupied Properties [Member]
Assets
Impaired loans	0	0
Fair Value, Measurements, Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Home Equity Line of Credit [Member] | Residential Real Estate [Member]
Assets
Impaired loans	0	0
Fair Value, Measurements, Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Multifamily properties [Member] | Residential Real Estate [Member]
Assets
Impaired loans	0	0
Fair Value, Measurements, Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Residential [Member] | Other Real Estate Owned [Member]
Assets
Impaired loans		0
Fair Value, Measurements, Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Other [Member] | Residential Real Estate [Member]
Assets
Impaired loans	0	0
Fair Value, Measurements, Nonrecurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets
Impaired loans	0	0
Fair Value, Measurements, Nonrecurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Commercial [Member]
Assets
Impaired loans	0	0
Fair Value, Measurements, Nonrecurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Non Residential [Member]
Assets
Impaired loans	0
Fair Value, Measurements, Nonrecurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Non Residential [Member] | Other Real Estate Owned [Member]
Assets
Impaired loans		0
Fair Value, Measurements, Nonrecurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Construction [Member]
Assets
Impaired loans	0	0
Fair Value, Measurements, Nonrecurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Owner Occupied Properties [Member]
Assets
Impaired loans	0	0
Fair Value, Measurements, Nonrecurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Non Owner Occupied Properties [Member]
Assets
Impaired loans	0	0
Fair Value, Measurements, Nonrecurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Home Equity Line of Credit [Member] | Residential Real Estate [Member]
Assets
Impaired loans	0	0
Fair Value, Measurements, Nonrecurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Multifamily properties [Member] | Nonresidential real estate Two [Member]
Assets
Impaired loans		0
Fair Value, Measurements, Nonrecurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Multifamily properties [Member] | Residential Real Estate [Member]
Assets
Impaired loans	0
Fair Value, Measurements, Nonrecurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Residential [Member] | Other Real Estate Owned [Member]
Assets
Impaired loans		0
Fair Value, Measurements, Nonrecurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Other [Member] | Residential Real Estate [Member]
Assets
Impaired loans	0	0
Fair Value, Measurements, Nonrecurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets
Impaired loans	17,942	21,383
Fair Value, Measurements, Nonrecurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Other Real Estate Owned [Member]
Assets
Impaired loans	0
Fair Value, Measurements, Nonrecurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Commercial [Member]
Assets
Impaired loans	3,393	546
Fair Value, Measurements, Nonrecurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Non Residential [Member]
Assets
Impaired loans	3,250
Fair Value, Measurements, Nonrecurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Non Residential [Member] | Other Real Estate Owned [Member]
Assets
Impaired loans		2,683
Fair Value, Measurements, Nonrecurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Residential Real Estate [Member]
Assets
Impaired loans	195
Fair Value, Measurements, Nonrecurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Construction [Member]
Assets
Impaired loans	796	2,657
Fair Value, Measurements, Nonrecurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Owner Occupied Properties [Member]
Assets
Impaired loans	5,157	6,346
Fair Value, Measurements, Nonrecurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Non Owner Occupied Properties [Member]
Assets
Impaired loans	869	2,788
Fair Value, Measurements, Nonrecurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Home Equity Line of Credit [Member]
Assets
Impaired loans	218
Fair Value, Measurements, Nonrecurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Home Equity Line of Credit [Member] | Residential Real Estate [Member]
Assets
Impaired loans		354
Fair Value, Measurements, Nonrecurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Multifamily properties [Member]
Assets
Impaired loans	0	1,072
Fair Value, Measurements, Nonrecurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Residential [Member] | Other Real Estate Owned [Member]
Assets
Impaired loans		396
Fair Value, Measurements, Nonrecurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Other [Member]
Assets
Impaired loans		4,541
Fair Value, Measurements, Nonrecurring [Member] | Significant Unobservable Inputs (Level 3) [Member] | Other [Member] | Residential Real Estate [Member]
Assets
Impaired loans	$ 4,064

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Securities (Amortized Cost and Fair Value of Debt Securities by Contractual Maturity) (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Available-for-sale, amortized cost
Due in one year or less	$ 3,238
Due after one year through five years	41,404
Due after five years through ten years	76,520
Due after ten years	995
U.S. Government agency mortgage-backed	189,663
Available-for-sale Securities, Debt Maturities, Amortized Cost Basis, Total	311,820
Available-for-sale, fair value
Due in one year or less	3,277
Due after one year through five years	41,316
Due after five years through ten years	74,436
Due after ten years	995
U.S. Government agency mortgage-backed	190,534
Available-for-sale Securities, Debt Securities, Total	310,558
Held-to-maturity, amortized cost
Due in one year or less	3,198
Due after one year through five years	32,269
Due after five years through ten years	37,324
Due after ten years	5,580
U.S. government agency mortgage-backed	0
Held-to-maturity Securities, Debt Maturities, Net Carrying Amount, Total	78,371	66,843
Held-to-maturity, fair value
Due in one year or less	3,214
Due after one year through five years	32,842
Due after five years through ten years	36,103
Due after ten years	5,580
U.S. government agency mortgage-backed	0
Held-to-maturity Securities, Debt Maturities, Fair Value, Total	$ 77,739	$ 68,504

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Accumulated Other Comprehensive Income

9 Months Ended

Sep. 30, 2013

Stockholders Equity Note [Abstract]

Accumulated Other Comprehensive Income

Note 11- Accumulated Other Comprehensive Income

The following table summarizes the changes within each classification of accumulated other comprehensive income for the nine months ended September 30, 2013: 

Reclassifications Out Of Accumulated Other Comprehensive Income

Details about Accumulated other Comprehensive Income Components	Amount Reclassified From Accumulated Other Comprehensive Income		Affected Line Item In the Statement Where Net Income is Presented
		(in thousands)
Unrealized gains and losses on available-for-sale securities	$	274	Net securities gains
		(96)	Income tax expense
	$	178	Net of tax

There were no reclassifications out of accumulated other comprehensive income for the three months ended September 30, 2013.

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New Accounting Pronouncements

9 Months Ended

Sep. 30, 2013

Accounting Changes and Error Corrections [Abstract]

New Accounting Pronouncements

Note 7 – New Accounting Pronouncements:

In February 2013, the FASB issued ASU 2013-02 with the primary objective of improving the reporting of reclassifications out of accumulated other comprehensive income (AOCI).   For significant reclassifications that are required to be presented in their entirety in net income in the same reporting period by U.S. Generally Accepted Accounting Principles (U.S. GAAP), the ASU requires an entity to report the effect of these reclassifications out of AOCI on the respective line items of net income either on the face of the statement that reports net income or in the financial statement notes.  For AOCI items that are not reclassified to net income in their entirety, presentation in the financial statement notes is required. This ASU is effective for public companies for fiscal years and interim periods within those years beginning after December 15, 2012, or the first quarter of 2013 for calendar year-end companies.  Adopting this standard did not have a material effect on the Company’s operating results or financial condition.

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Securities (Tables)

9 Months Ended

Sep. 30, 2013

Investments, Debt and Equity Securities [Abstract]

Fair Value of Available for Sale Securities and Related Gains and Losses Recognized in Accumulated Other Comprehensive Income or loss

The fair value of available-for-sale securities and the related gains and losses recognized in accumulated other comprehensive income (loss) was as follows (in thousands):

			Gross		Gross
Available-for-Sale	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
September 30, 2013
U.S. government, federal agencies and government      sponsored enterprises	$	121,162	$	223	$	(2,356)	$	119,029
U.S. government residential mortgage-backed		189,663		2,781		(1,910)		190,534
Corporate		995		-		-		995
	$	311,820	$	3,004	$	(4,266)	$	310,558

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
December 31, 2012
U.S. government, federal agencies and government      sponsored enterprises	$	127,416	$	1,130	$	(69)	$	128,477
U.S. government residential mortgage-backed		180,019		4,972		(84)		184,907
Corporate		1,060		-		-		1,060
	$	308,495	$	6,102	$	(153)	$	314,444

Amortized Cost, Unrecognized Gains and Losses, and Fair Value of Securities Held to Maturity

The carrying amount, unrecognized gains and losses, and fair value of securities held-to-maturity were as follows (in thousands):

			Gross		Gross
Held-to-Maturity	Amortized		Unrecognized		Unrecognized		Fair
	Cost		Gains		Losses		Value
September 30, 2013
Municipal and other obligations	$	78,371	$	1,096	$	(1,728)	$	77,739
December 31, 2012
Municipal and other obligations	$	66,843	$	1,900	$	(239)	$	68,504

Amortized Cost and Fair Value of Debt Securities by Contractual Maturity

The amortized cost and fair value of debt securities and carrying amount, if different, at September 30, 2013 by contractual maturity were as follows (in thousands), with securities not due at a single maturity date, primarily mortgage-backed securities, shown separately.

	Available-for-Sale				Held-to-Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due in one year or less	$	3,238	$	3,277	$	3,198	$	3,214
Due after one year through five years		41,404		41,316		32,269		32,842
Due after five years through ten years		76,520		74,436		37,324		36,103
Due after ten years		995		995		5,580		5,580
U.S. government agency mortgage-backed		189,663		190,534		-		-
	$	311,820	$	310,558	$	78,371	$	77,739

Securities with Unrealized Losses Aggregated by Investment Category and Length of Time Individual Securities Have Been in Continuous Unrealized Loss Position

Securities with unrealized losses at September 30, 2013 and December 31, 2012, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (in thousands):

Available for Sale:	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Loss		Value		Loss		Value		Loss
September 30, 2013
U.S. government, federal agencies and      government sponsored enterprises	$	89,115	$	(2,356)	$	-	$	-	$	89,115	$	(2,356)
U.S government residential mortgage-backed		90,533		(1,910)		-		-		90,533		(1,910)
Total temporarily impaired	$	179,648	$	(4,266)	$	-	$	-	$	179,648	$	(4,266)

Held to Maturity:	Less than 12 Months				12 Months or More				Total
	Fair		Unrecognized		Fair		Unrecognized		Fair		Unrecognized
Description of Securities	Value		Loss		Value		Loss		Value		Loss
September 30, 2013
Municipal & other obligations		34,397		(1,620)		5,403		(108)		39,800		(1,728)
Total temporarily impaired	$	34,397	$	(1,620)	$	5,403	$	(108)	$	39,800	$	(1,728)

Available for Sale:	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Loss		Value		Loss		Value		Loss
December 31, 2012
U.S. government, federal agencies and      government sponsored enterprises	$	11,877	$	(69)	$	-	$	-	$	11,877	$	(69)
U.S government residential mortgage-backed		18,142		(84)		-		-		18,142		(84)
Total temporarily impaired	$	30,019	$	(153)	$	-	$	-	$	30,019	$	(153)

Held to Maturity:	Less than 12 Months				12 Months or More				Total
	Fair		Unrecognized		Fair		Unrecognized		Fair		Unrecognized
Description of Securities	Value		Loss		Value		Loss		Value		Loss
December 31, 2012
Municipal & other obligations		15,056		(239)		-		-		15,056		(239)
Total temporarily impaired	$	15,056	$	(239)	$	-	$	-	$	15,056	$	(239)

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Earnings per Share (Tables)

9 Months Ended

Sep. 30, 2013

Earnings Per Share [Abstract]

Numbers of Shares Used to Compute Basic and Diluted Earnings Per Share

The following table presents the numbers of shares used to compute basic and diluted earnings per share for the indicated periods:

	Three Months Ended September 30				Nine Months Ended September 30
	2013		2012		2013		2012
Weighted average shares outstanding		7,516,770		7,465,926		7,495,763		7,459,988
Dilutive effects of assumed exercises of stock     options and warrants		32,760		88,133		73,500		77,415
Shares used to compute diluted earnings per share		7,549,530		7,554,059		7,569,263		7,537,403

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Document And Entity Information	9 Months Ended
	Sep. 30, 2013	Oct. 29, 2013
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q3
Trading Symbol	BKYF
Entity Registrant Name	BANK OF KENTUCKY FINANCIAL CORP
Entity Central Index Key	0000934547
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		7,529,823

XML

Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2013

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

changes in non-vested shares

A summary of changes in the Company’s non-vested shares for the three and nine months ended September 30,2013.

			Weighted-Average
Three months ended September 30, 2013			Grant-Date
Nonvested Shares	Shares		Fair Value
Non-vested at July 1, 2013		14,476		26.24
Granted		-		-
Vested		-		-
Forfeited		453		26.49
Non-vested at September 30, 2013		14,023	$	26.38

			Weighted-Average
Nine months ended September 30, 2013			Grant-Date
Nonvested Shares	Shares		Fair Value
Non-vested at January 1, 2013		4,185		25.80
Granted		14,476		26.39
Vested		4,185		25.80
Forfeited		453		26.49
Non-vested at September 30, 2013		14,023	$	26.38