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
December 31, 2012	Cost		Gains		Losses		Value
Government Agency & Government-Sponsored Entities	$	26,546	$	277	$	-	$	26,823
Obligations of States and Political Subdivisions		5,665		-		-		5,665
Mortgage Backed Securities (1)		341,212		11,570		10		352,772
Corporate Securities		22,318		252		12		22,558
Other		10,173		-		-		10,173
Total	$	405,914	$	12,099	$	22	$	417,991

	Amortized		Gross Unrealized				Fair/Book
December 31, 2011	Cost		Gains		Losses		Value
Government Agency & Government-Sponsored Entities	$	82,195	$	413	$	13	$	82,595
Obligations of States and Political Subdivisions		5,782		-		-		5,782
Mortgage Backed Securities (1)		383,380		7,792		139		391,033
Other		410		-		-		410
Total	$	471,767	$	8,205	$	152	$	479,820

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
December 31, 2012	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	65,694	$	2,296	$	3	$	67,987
Mortgage Backed Securities (1)		484		12		-		496
Other		2,214		-		-		2,214
Total	$	68,392	$	2,308	$	3	$	70,697

	Book		Gross Unrealized				Fair
December 31, 2011	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	59,640	$	2,736	$	-	$	62,376
Mortgage Backed Securities (1)		1,205		46		-		1,251
Other		2,247		-		-		2,247
Total	$	63,092	$	2,782	$	-	$	65,874

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.

(1) All Mortgage Backed Securities were issued by an agency or government sponsored entity of the U.S. government.

The amortized cost and estimated fair values of investment securities at December 31, 2012 by contractual maturity are shown in the following tables. (in thousands)

			After 1		After 5				Total
Securities Available-for-Sale	Within		but		but		Over		Fair
December 31, 2012	1 Year		Within 5		Within 10		10 years		Value
Government Agency & Government-Sponsored Entities	$	-	$	25,617	$	1,206	$	-	$	26,823
Obligations of States and Political Subdivisions		-		-		217		5,448		5,665
Mortgage Backed Securities		-		339		107,227		245,206		352,772
Corporate Securities		1,001		20,303		1,254		-		22,558
Other		10,173		-		-		-		10,173
Total	$	11,174	$	46,259	$	109,904	$	250,654	$	417,991

			After 1		After 5				Total
Securities Held-to-Maturity	Within		but		but		Over		Book
December 31, 2012	1 Year		Within 5		Within 10		10 years		Value
Obligations of States and Political Subdivisions	$	1,805	$	11,200	$	37,373	$	15,316	$	65,694
Mortgage Backed Securities		-		484		-		-		484
Other		-		5		2,209		-		2,214
Total	$	1,805	$	11,689	$	39,582	$	15,316	$	68,392

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

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

	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2012	Value		Loss		Value		Loss		Value		Loss

Securities Available-for-Sale
Mortgage Backed Securities	$	4,542	$	10	$	-	$	-	$	4,542	$	10
Corporate Securities		3,442		12		-		-		3,442		12
Total	$	7,984	$	22	$	-	$	-	$	7,984	$	22

Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	528	$	3	$	-	$	-	$	528	$	3
Total	$	528	$	3	$	-	$	-	$	528	$	3

	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2011	Value		Loss		Value		Loss		Value		Loss

Securities Available-for-Sale
Government Agency & Government-Sponsored Entities	$	4,987	$	13	$	-	$	-	$	4,987	$	13
Mortgage Backed Securities		85,090		139		-		-		85,090		139
Total	$	90,077	$	152	$	-	$	-	$	90,077	$	152

As of December 31, 2012, the Company held 387 investment securities of which 12 were in an unrealized loss position for less than twelve months. No securities were in an unrealized 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 Government Agency and Government Sponsored Entities - The unrealized losses on the Company's investments in securities of government agency and government sponsored entities were $0 at December 31, 2012 and $13,000 at December 31, 2011. Management believes that any unrealized losses were caused by interest rate fluctuations. 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 did not intend to sell the securities and it was more likely than not that the Company would not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at December 31, 2011.

Mortgage Backed Securities - The unrealized losses on the Company's investment in mortgage backed securities were $10,000 at December 31, 2012 and $139,000 at December 31, 2011, respectively. The unrealized losses on the Company's investment in mortgage backed securities were caused by interest rate fluctuations. The contractual cash flows of these investments are guaranteed by an agency or government sponsored entity 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 December 31, 2012 or 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 December 31, 2012, over ninety-three percent of the Company's bank-qualified municipal bond portfolio is rated at either the issue or issuer level, and all of these ratings are "investment grade." The Company monitors the status of the seven percent of the portfolio that is not rated 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.

The unrealized losses on the Company's investment in obligation of states and political subdivision were $3,000 at December 31, 2012 and $0 at December 31, 2011. Management believes that any unrealized losses on the Company's investments in obligations of states and political subdivisions were caused by interest rate fluctuations. 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 December 31, 2012.

Corporate Securities - The unrealized losses on the Company's investment in corporate securities were $12,000 at December 31, 2012 and $0 at December 31, 2011. Changes in the prices of corporate securities are primarily influenced by: (1) changes in market interest rates; (2) changes in perceived credit risk in the general economy or in particular industries; (3) changes in the perceived credit risk of a particular company; and (4) day to day trading supply, demand and liquidity.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 December 31, 2012.



Proceeds from sale/calls of securities for the periods shown were as follows: (in thousands)	Gross Proceeds		Gross Gains		Gross Losses
2012	$	55,986	$	158	$	-
2011		201,135		95		-
2010		268,490		2,895

As of December 31, 2012, securities carried at $296.9 million were pledged to secure public deposits, FHLB borrowings, and other government agency deposits as required by law. This amount at December 31, 2011, was $373.2 million.