3. INVESTMENT SECURITIES

The amortized cost and fair value of investment securities at December 31, 2012 and 2011 were as follows (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
2012	Cost		Gains		Losses			Value
Available-for-sale securities:
U.S. Agency securities	$	125,125	$	2,150	$	(41	)	$	127,234
U.S. Treasuries		4,922		25		-			4,947
Obligations of state and
political subdivisions		95,288		5,721		(134	)		100,875
Corporate obligations		21,699		452		(42	)		22,109
Mortgage-backed securities in
government sponsored entities		52,072		1,728		(127	)		53,673
Equity securities in financial institutions		912		502		-			1,414
Total available-for-sale securities	$	300,018	$	10,578	$	(344	)	$	310,252

2011
Available-for-sale securities:
U.S. Agency securities	$	166,534	$	2,087	$	(21	)	$	168,600
Obligations of state and
political subdivisions		96,556		4,996		(5	)		101,547
Corporate obligations		8,263		197		-			8,460
Mortgage-backed securities in
government sponsored entities		36,630		2,356		(12	)		38,974
Equity securities in financial institutions		823		420		(1	)		1,242
Total available-for-sale securities	$	308,806	$	10,056	$	(39	)	$	318,823

The following table shows the Company's gross unrealized losses and fair value, aggregated by investment category and length of time, that the individual securities have been in a continuous unrealized loss position, at December 31, 2012 and 2011 (in thousands). As of December 31, 2012, the Company owned 25 securities whose fair value was less than their cost basis, respectively.

	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
2012	Value		Losses			Value		Losses			Value		Losses
U.S. Agency securities	$	6,016	$	(41	)	$	-	$	-		$	6,016	$	(41	)
Obligations of states and
political subdivisions		7,981		(134	)		-		-			7,981		(134	)
Corporate obligations		10,972		(42	)		-		-			10,972		(42	)
Mortgage-backed securities in
government sponsored entities		8,651		(127	)		-		-			8,651		(127	)
Total securities	$	33,620	$	(344	)	$	-	$	-		$	33,620	$	(344	)

2011
U.S. Agency securities	$	10,018	$	(21	)	$	-	$	-		$	10,018	$	(21	)
Obligations of states and
political subdivisions		1,057		(3	)		771		(2	)		1,828		(5	)
Mortgage-backed securities in
government sponsored entities		3,164		(12	)		-		-			3,164		(12	)
Equity securities in financial institutions		39		(1	)		-		-			39		(1	)
Total securities	$	14,278	$	(37	)	$	771	$	(2	)	$	15,049	$	(39	)

As of December 31, 2012, the Company's investment securities portfolio contains unrealized losses on agency securities issued or backed by the full faith and credit of the United States government or are generally viewed as having the implied guarantee of the U.S. government, corporate obligations, obligations of states and political subdivisions and mortgage backed securities in government sponsored entities. For fixed maturity investments management considers whether the present value of cash flows expected to be collected are less than the security's amortized cost basis (the difference defined as the credit loss), the magnitude and duration of the decline, the reasons underlying the decline and the Company's intent to sell the security or whether it is more likely than not that the Company would be required to sell the security before its anticipated recovery in market value, to determine whether the loss in value is other than temporary. Once a decline in value is determined to be other than temporary, if the Company does not intend to sell the security, and it is more-likely-than-not that it will not be required to sell the security, before recovery of the security's amortized cost basis, the charge to earnings is limited to the amount of credit loss. Any remaining difference between fair value and amortized cost (the difference defined as the non-credit portion) is recognized in other comprehensive income, net of applicable taxes. Otherwise, the entire difference between fair value and amortized cost is charged to earnings. For equity securities where the fair value has been significantly below cost for one year, the Company's policy is to recognize an impairment loss unless sufficient evidence is available that the decline is not other than temporary and a recovery period can be predicted. During 2011, an impairment loss was determined to be other than temporary for an equity security in a financial institution. As a result a $54,000 loss was recognized on the Consolidated Statement of Income. As of December 31, 2012 and 2011, the Company has concluded that any impairment of its investment securities portfolio outlined in the above table is not other than temporary and is the result of interest rate changes, sector credit rating changes, or company-specific rating changes that are not expected to result in the non-collection of principal and interest during the period.

Proceeds from sales of securities available-for-sale during 2012, 2011, and 2010 were $20,619,000, $10,264,000 and $8,871,000, respectively. The gross gains realized during 2012 consisted of realized gains of $50,000, $392,000, $58,000, $95,000 and $9,000 from the sale of four agency securities, twelve mortgage backed securities, portions of an equity security, two U.S. Treasuries and one municipal security, respectively. There were no losses incurred during 2012. The gross gains realized during 2011 consisted of realized gains of $115,000, $254,000, $68,000 and $24,000 from the sale of three agency securities, thirteen mortgage backed securities, portions of two equity securities and one municipal security, respectively. The gross losses incurred during 2011 were made up of realized losses of $4,000, $6,000, and $63,000 from the sale of an equity security, one mortgage backed security, and three municipal securities and an impairment charge related to an equity security in a financial institution in the amount of $54,000. The gross gains realized during 2010 consisted of realized gains of $21,000, $23,000, and $55,000 from the sale of a U.S. Treasury note, three agency securities and one mortgage backed securities, respectively. There were no losses incurred during 2010. Gross gains and gross losses were realized as follows (in thousands):

	2012		2011		2010
Gross gains	$	604	$	461	$	99
Gross losses		-		127		-
Net gains	$	604	$	334	$	99

Investment securities with an approximate carrying value of $193,332,000 and $177,940,000 at December 31, 2012 and 2011, respectively, were pledged to secure public funds and certain other deposits as provided by law and certain borrowing arrangements of the Company.

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The amortized cost and fair value of debt securities at December 31, 2012, by contractual maturity, are shown below (in thousands):

	Amortized
	Cost		Fair Value
Available-for-sale securities:
Due in one year or less	$	19,148	$	19,317
Due after one year through five years		71,727		73,597
Due after five years through ten years		63,510		64,811
Due after ten years		144,721		151,113
Total	$	299,106	$	308,838