(4) Investment Securities - Available-for-Sale

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

	March 31, 2013
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
Debt investment securities:
US Treasury, agencies and GSEs	$	19,953	$	15	$	(34	)	$	19,934
State and political subdivisions		25,540		864		(93	)		26,311
Corporate		21,774		420		(341	)		21,853
Residential mortgage-backed - US agency		53,440		1,056		(149	)		54,347
Residential mortgage-backed - private label		261		8		-			269
Total		120,968		2,363		(617	)		122,714
Equity investment securities:
Mutual funds:
Ultra short mortgage fund		1,286		-		-			1,286
Large cap equity fund		905		303		-			1,208
Other mutual funds		183		128		-			311
Common stock - financial services industry		420		16		-			436
Total		2,794		447		-			3,241
Total investment securities	$	123,762	$	2,810	$	(617	)	$	125,955

	December 31, 2012
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
Debt investment securities:
US Treasury, agencies and GSEs	$	6,175	$	16	$	(8	)	$	6,183
State and political subdivisions		26,413		1,065		(7	)		27,471
Corporate		22,942		468		(404	)		23,006
Residential mortgage-backed - US agency		47,113		1,139		(1	)		48,251
Residential mortgage-backed - private label		296		9		-			305
Total		102,939		2,697		(420	)		105,216
Equity investment securities:
Mutual funds:
Ultra short mortgage fund		1,286		5		-			1,291
Large cap equity fund		905		176		-			1,081
Other mutual funds		183		136		-			319
Common stock - financial services industry		420		12		-			432
Total		2,794		329		-			3,123
Total investment securities	$	105,733	$	3,026	$	(420	)	$	108,339

The amortized cost and estimated fair value of debt investments at March 31, 2013 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	$	7,032	$	7,062
Due after one year through five years		27,261		27,689
Due after five years through ten years		15,308		15,674
Due after ten years		17,666		17,673
Mortgage-backed securities		53,701		54,616
Totals	$	120,968	$	122,714

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:

										March 31, 2013
			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)
US Treasury, agencies and GSE's		13	$	(34	)	$	14,858		-	$	-		$	-		13	$	(34	)	$	14,858
State and political subdivisions		7		(93	)		3,888		-		-			-		7		(93	)		3,888
Corporate		1		(6	)		403		2		(335	)		1,635		3		(341	)		2,038
Residential mortgage-backed - US agency		12		(149	)		13,696		-		-			-		12		(149	)		13,696
Totals		33	$	(282	)	$	32,845		2	$	(335	)	$	1,635		35	$	(617	)	$	34,480


										December 31, 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)
US Treasury, agencies and GSE's		1	$	(8	)	$	992		-	$	-		$	-		1	$	(8	)	$	992
State and political subdivisions		8		(7	)		2,008		-		-			-		8		(7	)		2,008
Corporate		2		(14	)		974		2		(390	)		1,580		4		(404	)		2,554
Residential mortgage-backed - US agency		2		(1	)		1,411		-		-			-		2		(1	)		1,411
Totals		13	$	(30	)	$	5,385		2	$	(390	)	$	1,580		15	$	(420	)	$	6,965

The Company conducts a formal review of investment securities on a quarterly basis for the presence of other-than-temporary impairment ("OTTI"). The Company assesses 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 March 31, 2013 represents OTTI. All related securities are rated A2 or better by Moody's and have been in an unrealized loss position for five months or less, 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. All of the Company's equity securities had a fair value greater than the book value at March 31, 2013.

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

	For the three months
	ended March 31,
(In thousands)	2013		2012
Realized gains	$	39	$	112
Realized losses		-		-
	$	39	$	112

As of March 31, 2013 and December 31, 2012, securities with a fair value of $67.5 million and $46.0 million, respectively, were pledged to collateralize certain municipal deposit relationships. As of the same dates, securities with a fair value of $32.8 million and $37.8 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 March 31, 2013 and December 31, 2012.

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.