3. INVESTMENT SECURITIES

At the time of purchase of a security, the Company designates the security as either available for sale or held to maturity, depending upon investment objectives, liquidity needs and intent. Securities held to maturity are stated at cost, adjusted for premium amortized or discount accreted, if any. The Company has the positive intent and ability to hold such securities to maturity. Securities available for sale are stated at estimated fair value. Unrealized gains and losses are excluded from income and reported net of tax as accumulated other comprehensive income (loss) as a separate component of stockholders' equity until realized. Interest earned on securities is included in interest income. Realized gains and losses on the sale of securities are reported in the consolidated statements of operations and determined using the adjusted cost of the specific security sold.

The amortized cost, estimated fair value and gross unrealized gains and losses of the Company's investment securities available for sale and held to maturity at March 31, 2013 and December 31, 2012 follow (in thousands).

	March 31, 2013									December 31, 2012
			Gross		Gross			Estimated				Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
Available for sale:
U.S. Treasury securities	$	-	$	-	$	-		$	-	$	500	$	-	$	-		$	500
U.S. government agency securities		75,533		59		(204	)		75,388		65,085		70		(77	)		65,078
Obligations of states and political subdivisions		153,701		12,851		-			166,552		155,121		13,314		-			168,435
Collateralized mortgage obligations		64,724		1,449		(69	)		66,104		87,624		2,148		(80	)		89,692
Mortgage-backed securities		86,156		500		(277	)		86,379		61,750		766		(66	)		62,450
Corporate bonds		18,507		362		(15	)		18,854		15,701		497		-			16,198
Total available for sale securities		398,621		15,221		(565	)		413,277		385,781		16,795		(223	)		402,353
Held to maturity:
Obligations of states and political subdivisions		7,871		791		-			8,662		8,035		826		-			8,861
Total investment securities	$	406,492	$	16,012	$	(565	)	$	421,939	$	393,816	$	17,621	$	(223	)	$	411,214

At March 31, 2013 and December 31, 2012, investment securities carried at $278 million and $286 million, respectively, were pledged to secure trust deposits and public funds on deposit.

The amortized cost, contractual maturities and estimated fair value of the Company's investment securities at March 31, 2013 (in thousands) are presented in the table below. Collateralized mortgage obligations ("CMOs") and mortgage-backed securities ("MBS") assume maturity dates pursuant to average lives.

	March 31, 2013
	Amortized		Estimated
	Cost		Fair Value
Securities available for sale:
Due in one year or less	$	42,434	$	43,232
Due from one to five years		116,217		123,531
Due from five to ten years		209,792		216,357
Due after ten years		30,178		30,157
Total securities available for sale		398,621		413,277
Securities held to maturity:
Due in one year or less		1,535		1,545
Due from one to five years		5,938		6,672
Due from five to ten years		398		445
Total securities held to maturity		7,871		8,662
Total investment securities	$	406,492	$	421,939

The proceeds from sales of securities available for sale and the associated net realized gains follow (in thousands):

	Three Months Ended
	March 31,
	2013		2012
Proceeds	$	10,475	$	-

Gross realized gains		359		-
Gross realized losses		-		-
Net realized gains	$	359	$	-

The table below indicates the length of time individual securities, both held to maturity and available for sale, have been held in a continuous unrealized loss position at the date indicated (in thousands).

			Less than 12 months				12 months or longer				Total
As of March 31, 2013	Number of		Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
Type of securities	Securities		Fair value		Losses		Fair value		Losses		Fair value		Losses
U.S. government agency securities		8	$	38,820	$	204	$	-	$	-	$	38,820	$	204
Collateralized mortgage obligations		3		10,177		69		-		-		10,177		69
Mortgage-backed securities		9		30,696		277		-		-		30,696		277
Corporate bonds		2		5,520		15		-		-		5,520		15
Total		22	$	85,213	$	565	$	-	$	-	$	85,213	$	565

			Less than 12 months				12 months or longer				Total
As of December 31, 2012	Number of		Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
Type of securities	Securities		Fair value		Losses		Fair value		Losses		Fair value		Losses
U.S. government agency securities		6	$	28,958	$	77	$	-	$	-	$	28,958	$	77
Collateralized mortgage obligations		2		7,878		80		-		-		7,878		80
Mortgage-backed securities		4		14,098		66		-		-		14,098		66
Total		12	$	50,934	$	223	$	-	$	-	$	50,934	$	223

The Company's 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. All of the Company's 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 under ASC 320, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than amortized 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 Company 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 OTTI decline exists involves a high degree of subjectivity and judgment and is based on information available to management at a point in time. An OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

When an 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 is recognized in earnings equal to the entire difference between the investment's amortized cost and its estimated fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost less any current-period loss, the OTTI is 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 is recognized in other comprehensive income, net of applicable tax benefit. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

Upon review of the considerations mentioned here, no OTTI was deemed to be warranted at March 31, 2013.