2. Investment Securities

The amortized cost, fair values, and unrealized gains and losses of the securities available-for-sale are as follows (in thousands):

	Amortized		Gross Unrealized				Fair/Book
September 30, 2011	Cost		Gains		Losses		Value
Securities of U.S. Government Agencies	$	162,115	$	635	$	-	$	162,750
Obligations of States and Political Subdivisions		5,813		-		-		5,813
Mortgage Backed Securities		243,121		8,787		22		251,886
Other		7,395		-		-		7,395
Total	$	418,444	$	9,422	$	22	$	427,844

	Amortized		Gross Unrealized				Fair/Book
December 31, 2010	Cost		Gains		Losses		Value
Securities of U.S. Government Agencies	$	237,944	$	305	$	1,930	$	236,319
Obligations of States and Political Subdivisions		6,378		-		-		6,378
Mortgage Backed Securities		181,228		6,028		1,619		185,637
Other		6,522		-		-		6,522
Total	$	432,072	$	6,333	$	3,549	$	434,856

	Amortized		Gross Unrealized				Fair/Book
September 30, 2010	Cost		Gains		Losses		Value
Securities of U.S. Government Agencies	$	205,177	$	582	$	36	$	205,723
Obligations of States and Political Subdivisions		6,416		-		-		6,416
Mortgage Backed Securities		125,567		6,800		-		132,367
Other		6,523		-		-		6,523
Total	$	343,683	$	7,382	$	36	$	351,029

The book values, estimated fair values and unrealized gains and losses of investments classified as held-to-maturity are as follows (in thousands):

	Book		Gross Unrealized				Fair
September 30, 2011	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	60,130	$	2,437	$	-	$	62,567
Mortgage Backed Securities		1,418		62		-		1,480
Other		2,255		-		-		2,255
Total	$	63,803	$	2,499	$	-	$	66,302

	Book		Gross Unrealized				Fair
December 31, 2010	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	60,439	$	1,258	$	241	$	61,456
Mortgage Backed Securities		2,218		85		-		2,303
Other		2,280		-		-		2,280
Total	$	64,937	$	1,343	$	241	$	66,039

	Book		Gross Unrealized				Fair
September 30, 2010	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	63,471	$	2,777	$	-	$	66,248
Mortgage Backed Securities		2,524		118		-		2,642
Other		1,989		-		-		1,989
Total	$	67,984	$	2,895	$	-	$	70,879

Fair values are based on quoted market prices or dealer quotes. If a quoted market price or dealer quote is not available, fair value is estimated using quoted market prices for similar securities.

The amortized cost and estimated fair values of investment securities at September 30, 2011 by contractual maturity are shown below (in thousands).

Securities Available-for-Sale September 30, 2011	Within 1 Year		After 1 but Within 5		After 5 but Within 10		Over 10 years		Total Fair Value
Securities of U.S. Government Agencies	$	10,194	$	146,385	$	6,171	$	-	$	162,750
Obligations of States and Political Subdivisions		-		-		227		5,586		5,813
Mortgage Backed Securities		-		-		97,109		154,777		251,886
Other		7,395		-		-		-		7,395
Total	$	17,589	$	146,385	$	103,507	$	160,363	$	427,844

Securities Held-to-Maturity September 30, 2011	Within 1 Year		After 1 but Within 5		After 5 but Within 10		Over 10 years		Total Book Value
Obligations of States and Political Subdivisions	$	700	$	7,073	$	43,171	$	9,186	$	60,130
Mortgage Backed Securities		-		1,418		-		-		1,418
Other		-		7		2,248		-		2,255
Total	$	700	$	8,498	$	45,419	$	9,186	$	63,803

Expected maturities of mortgage-backed securities can differ from contractual maturities because borrowers have the right to call or prepay obligations with or without prepayment penalties.

The following tables show those investments with gross unrealized losses and their market value (in thousands) aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at the dates indicated.

	Less Than 12 Months				12 Months or More				Total
September 30, 2011	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities of U.S. Government Agencies	$	-	$	-	$	-	$	-	$	-	$	-
Obligations of States and Political Subdivisions		-		-		-		-		-		-
Mortgage Backed Securities		10,130		22		-		-		10,130		22
Total	$	10,130	$	22	$	-	$	-	$	10,130	$	22

	Less Than 12 Months				12 Months or More				Total
December 31, 2010	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Securities of U.S. Government Agencies	$	145,844	$	1,930	$	-	$	-	$	145,844	$	1,930
Obligations of States and Political Subdivisions		6,165		241		-		-		6,165		241
Mortgage Backed Securities		44,479		1,619		-		-		44,479		1,619
Total	$	196,488	$	3,790	$	-	$	-	$	196,488	$	3,790

	Less Than 12 Months				12 Months or More				Total
September 30, 2010	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Obligations of States and Political Subdivisions	$	18,381	$	36	$	-	$	-	$	18,381	$	36
Total	$	18,381	$	36	$	-	$	-	$	18,381	$	36

As of September 30, 2011, the Company held 267 investment securities of which one was in a loss position for less than twelve months. No securities were in a continuous loss position for twelve months or more. Management periodically evaluates each investment security for other-than-temporary impairment relying primarily on industry analyst reports and observations of market conditions and interest rate fluctuations. Management believes it will be able to collect all amounts due according to the contractual terms of the underlying investment securities.

Securities of U.S. Government Agencies

The unrealized losses on the Company's investments in securities of U.S. government agencies were caused by interest rate increases. Repayment of these investments is guaranteed by an agency of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company's investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2011.

Mortgage Backed Securities

The unrealized losses on the Company's investment in mortgage backed securities were caused by interest rate increases. The contractual cash flows of these investments are guaranteed by an agency of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company's investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2011.

Obligations of States and Political Subdivisions

The continuing financial problems being experienced by certain municipalities, along with the financial stresses exhibited by some of the large monoline bond insurers, have increased the overall risk associated with bank-qualified municipal bonds. As of September 30, 2011 over eighty percent of the Company's bank-qualified municipal bonds have an underlying credit rating, and all of these ratings are “investment grade.” For those bonds in the portfolio that are not rated, the Company monitors the status of these issuers and at the current time does not believe any of them to be exhibiting financial problems that could result in a loss in any individual security.

Management believes that the unrealized losses on the Company's investments in obligations of states and political subdivisions were caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2011.

Pledged Securities

As of September 30, 2011, securities carried at $382.9 million were pledged to secure public deposits, FHLB borrowings, and other government agency deposits as required by law. This amount at December 31, 2010, was $346.3 million.