(4) Investment Securities - Available-for-Sale

The amortized cost and estimated fair value of investment securities are summarized as follows:

	September 30, 2012
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
Debt investment securities:
US Treasury, agencies and GSEs	$	5,176	$	26	$	-		$	5,202
State and political subdivisions		25,994		1,122		(2	)		27,114
Corporate		24,042		382		(525	)		23,899
Residential mortgage-backed - US agency		52,797		1,768		(1	)		54,564
Residential mortgage-backed - private label		346		11		-			357
Total		108,355		3,309		(528	)		111,136
Equity investment securities:
Mutual funds:
Ultra short mortgage fund		1,286		14		-			1,300
Large cap equity fund		905		243		-			1,148
Other mutual funds		183		114		-			297
Common stock - financial services industry		422		10		(1	)		431
Total		2,796		381		(1	)		3,176
Total investment securities	$	111,151	$	3,690	$	(529	)	$	114,312



	December 31, 2011
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
Debt investment securities:
US Treasury, agencies and GSEs	$	5,025	$	48	$	-		$	5,073
State and political subdivisions		19,508		797		(1	)		20,304
Corporate		21,086		38		(690	)		20,434
Residential mortgage-backed - US agency		49,665		1,395		(4	)		51,056
Residential mortgage-backed - private label		505		14		-			519
Total		95,789		2,292		(695	)		97,386
Equity investment securities:
Mutual funds:
Ultra short mortgage fund		1,286		12		-			1,298
Large cap equity fund		905		119		-			1,024
Other mutual funds		183		60		-			243
Common stock - financial services industry		443		2		(1	)		444
Total		2,817		193		(1	)		3,009
Total investment securities	$	98,606	$	2,485	$	(696	)	$	100,395

The amortized cost and estimated fair value of debt investments at September 30, 2012 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.

	Amortized		Estimated
	Cost		Fair Value
(In thousands)
Due in one year or less	$	7,294	$	7,329
Due after one year through five years		22,421		22,887
Due after five years through ten years		7,042		7,478
Due after ten years		18,455		18,521
Mortgage-backed securities		53,143		54,921
Totals	$	108,355	$	111,136

The Company's investment securities' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

										September 30, 2012
			Less than Twelve Months							Twelve Months or More							Total
	Number of							Number of							Number of
	Individual		Unrealized			Fair		Individual		Unrealized			Fair		Individual		Unrealized			Fair
	Securities		Losses			Value		Securities		Losses			Value		Securities		Losses			Value
(Dollars in thousands)
State and political subdivisions		4	$	(2	)	$	1,475		-	$	-		$	-		4	$	(2	)	$	1,475
Corporate		4		(37	)		2,633		2		(488	)		1,481		6		(525	)		4,114
Residential mortgage-backed - US agency		2		(1	)		1,018		-		-			-		2		(1	)		1,018
Common stock-financial services industry		1		(1	)		2		-		-			-		1		(1	)		2
Totals		11	$	(41	)	$	5,128		2	$	(488	)	$	1,481		13	$	(529	)	$	6,609


										December 31, 2011
			Less than Twelve Months							Twelve Months or More							Total
	Number of							Number of							Number of
	Individual		Unrealized			Fair		Individual		Unrealized			Fair		Individual		Unrealized			Fair
	Securities		Losses			Value		Securities		Losses			Value		Securities		Losses			Value
(Dollars in thousands)
State and political subdivisions		1	$	(1	)	$	412		-	$	-		$	-		1	$	(1	)	$	412
Corporate		19		(131	)		13,489		2		(559	)		1,410		21		(690	)		14,899
Residential mortgage-backed - US agency		2		(4	)		1,896		-		-			-		2		(4	)		1,896
Common stock-financial services industry		-		-			-		1		(1	)		3		1		(1	)		3
Totals		22	$	(136	)	$	15,797		3	$	(560	)	$	1,413		25	$	(696	)	$	17,210

We conduct a formal review of investment securities on a quarterly basis for the presence of other-than-temporary impairment ("OTTI"). We assess whether OTTI is present when the fair value of a debt security is less than its amortized cost basis at the statement of condition date. Under these circumstances, OTTI is considered to have occurred (1) if we intend to sell the security; (2) if it is "more likely than not" we will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not anticipated to be sufficient to recover the entire amortized cost basis. The guidance requires that credit-related OTTI is recognized in earnings while non-credit-related OTTI on securities not expected to be sold is recognized in other comprehensive income ("OCI"). Non-credit-related OTTI is based on other factors, including illiquidity and changes in the general interest rate environment. Presentation of OTTI is made in the consolidated statement of income on a gross basis, including both the portion recognized in earnings as well as the portion recorded in OCI. The gross OTTI would then be offset by the amount of non-credit-related OTTI, showing the net as the impact on earnings.

The Company's investment securities portfolio includes two corporate securities representing trust preferred issuances from large money center financial institutions. The securities have been in an unrealized loss position for more than 12 months. The securities are both floating rate notes that adjust quarterly to LIBOR ("London Interbank Offered Rate"). These securities are reflecting a net unrealized loss due to current similar offerings being originated at higher spreads to LIBOR, as the market currently demands a greater pricing premium for the associated risk. Management has performed a detailed credit analysis on the underlying companies and has concluded that neither issue is credit impaired. Due to the fact that each security has approximately 15 years until final maturity, and management has determined that there is no related credit impairment, the associated pricing risk is managed similar to long-term, low yielding, 15 and 30-year fixed rate residential mortgages carried in the Company's loan portfolio. The risk is managed through the Company's extensive interest rate risk management procedures. The Company expects the present value of expected cash flows will be sufficient to recover the amortized cost basis. Thus, the securities are not deemed to be other-than-temporarily impaired.

Management does not believe any individual unrealized loss in other securities within the portfolio as of September 30, 2012 represents OTTI. All related securities are rated Baa1 or better by Moody's or Standard & Poor's, with the exception of the two corporate securities noted above. The unrealized losses in the portfolio are primarily attributable to changes in interest rates. The Company does not intend to sell these securities, nor is it more likely than not that the Company will be required to sell these securities prior to the recovery of the amortized cost.

In determining whether OTTI has occurred for equity securities, the Company considers the applicable factors described above and the length of time the equity security's fair value has been below the carrying amount. Management has determined that we have the intent and ability to retain the equity securities for a sufficient period of time to allow for recovery. The Company holds one equity security that had a fair value less than the carrying value at September 30, 2012. A small common stock investment in The Phoenix Companies has an unrealized loss of $1,300. Due to the relatively small size of the unrealized loss and short duration of the loss period, no OTTI is deemed present in relation to this security.

The following table presents a roll-forward of the amount related to credit losses recognized in earnings for the periods ended September 30:

(In thousands)	2012		2011
Beginning balance – January 1	$	-	$	875
Reductions for securities sold		-		(875	)
Ending balance - September 30	$	-	$	-

The above credit losses were related to one security that was sold at a small gain during the period ended September 30, 2011.

Gross realized gains (losses) on sales of securities for the indicated periods are detailed below:

	For the three months					For the nine months
	ended September 30,					ended September 30,
(In thousands)	2012			2011		2012			2011
Realized gains	$	30		$	469	$	191		$	796
Realized losses		(12	)		-		(12	)		(5	)
	$	18		$	469	$	179		$	791

As of September 30, 2012 and December 31, 2011, securities with a fair value of $39.6 million and $43.1 million, respectively, were pledged to collateralize certain municipal deposit relationships. As of the same dates, securities with a fair value of $38.4 million and $21.8 million were pledged against certain borrowing arrangements. Total borrowings of $5.0 million were outstanding relating to the above noted collateralized borrowing arrangements as of both September 30, 2012 and December 31, 2011.

Management has reviewed its loan and mortgage-backed securities portfolios and determined that, to the best of its knowledge, little or no exposure exists to sub-prime or other high-risk residential mortgages. The Company is not in the practice of investing in, or originating, these types of investments or loans.