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
June 30, 2013	Cost		Gains		Losses		Value
Government Agency & Government-Sponsored Entities	$	26,327	$	155	$	-	$	26,482
Obligations of States and Political Subdivisions		5,612		-		-		5,612
Mortgage Backed Securities⁽¹⁾		396,041		4,373		7,840		392,574
Corporate Securities		49,647		180		267		49,560
Other		1,186		-		-		1,186
Total	$	478,813	$	4,708	$	8,107	$	475,414

	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
June 30, 2012	Cost		Gains		Losses		Value
Government Agency & Government-Sponsored Entities	$	56,764	$	314	$	-	$	57,078
Obligations of States and Political Subdivisions		5,724		-		-		5,724
Mortgage Backed Securities⁽¹⁾		414,990		12,647		-		427,637
Corporate Securities		8,983		29		17		8,995
Other		2,458		-		-		2,458
Total	$	488,919	$	12,990	$	17	$	501,892

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
June 30, 2013	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	64,648	$	1,252	$	531	$	65,369
Mortgage Backed Securities⁽¹⁾		217		3		-		220
Other		2,194		-		-		2,194
Total	$	67,059	$	1,255	$	531	$	67,783

	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
June 30, 2012	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	67,159	$	2,498	$	51	$	69,606
Mortgage Backed Securities⁽¹⁾		806		25		-		831
Other		2,230		-		-		2,230
Total	$	70,195	$	2,523	$	51	$	72,667

⁽¹⁾All Mortgage Backed Securities consist of securities collateralized by residential real estate and were issued by an agency or government sponsored entity of the U.S. government.

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 June 30, 2013 by contractual maturity are shown in the following tables (in thousands):

	Available-for-Sale				Held-to-Maturity
	Amortized		Fair/Book		Book		Fair
June 30, 2013	Cost		Value		Value		Value
Within One Year	$	11,680	$	11,718	$	2,075	$	2,084
After One Year Through Five Years		64,383		64,378		13,317		13,627
After Five Years Through Ten Years		1,310		1,345		36,228		37,161
After Ten Years		5,399		5,399		15,222		14,691
		82,772		82,840		66,842		67,563

Investment Securities Not Due at a Single Maturity Date:
Mortgage Backed Securities		396,041		392,574		217		220

Total	$	478,813	$	475,414	$	67,059	$	67,783

Expected maturities of mortgage backed securities may differ from contractual maturities because borrowers may 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
June 30, 2013	Value		Loss		Value		Loss		Value		Loss

Securities Available-for-Sale
Mortgage Backed Securities	$	205,363	$	7,840	$	-	$	-	$	205,363	$	7,840
Corporate Securities		30,597		267		-		-		30,597		267
Total	$	235,960	$	8,107	$	-	$	-	$	235,960	$	8,107

Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	9,626	$	531	$	-	$	-	$	9,626	$	531
Total	$	9,626	$	531	$	-	$	-	$	9,626	$	531

	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
June 30, 2012	Value		Loss		Value		Loss		Value		Loss

Securities Available-for-Sale
Corporate Securities	$	3,405	$	17	$	-	$	-	$	3,405	$	17
Total	$	3,405	$	17	$	-	$	-	$	3,405	$	17

Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	4,774	$	51	$	-	$	-	$	4,774	$	51
Total	$	4,774	$	51	$	-	$	-	$	4,774	$	51

As of June 30, 2013, the Company held 363 investment securities of which 82 were in a loss position for less than twelve months. No securities were in a 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 – There were no unrealized losses on the Company’s investments in securities of government agency and government sponsored entities at June 30, 2013, December 31, 2012 and June 30, 2012.

Mortgage Backed Securities - The unrealized losses on the Company's investment in mortgage backed securities were $7.8 million, $10,000, and $0 at June 30, 2013, December 31, 2012, and June 30, 2012, 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 June 30, 2013 and December 31, 2012, respectively.

Obligations of States and Political Subdivisions - The financial problems experienced by certain municipalities over the past five years, 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 June 30, 2013, over ninety-four 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 six 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 $531,000, $3,000, and $51,000 at June 30, 2013, December 31, 2012 and June 30, 2012, respectively. Management believes that any unrealized losses on the Company's investments in obligations of states and political subdivisions were primarily 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 June 30, 2013, December 31, 2012 and June 30, 2012.

Corporate Securities - The unrealized losses on the Company’s investment in corporate securities were $267,000. $12,000, and $17,000 at June 30, 2013, December 31, 2012, and June 30, 2012. 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 June 30, 2013, December 31, 2012 and June 30, 2012.

Proceeds from sales and calls of securities available-for-sale were as follows:

	Three Months				Six Months
	Ended June 30,				Ended June 30,
(in thousands)	2013		2012		2013		2012
Proceeds	$	4,356	$	1,530	$	49,615	$	26,530
Gains		154		-		903		-
Losses		-		-		14		-

Pledged Securities

As of June 30, 2013, securities carried at $290.6 million were pledged to secure public deposits, FHLB borrowings, and other government agency deposits as required by law. This amount at December 31, 2012, was $296.9 million.