NOTE 3 - INVESTMENT SECURITIES

The amortized cost, related estimated fair value, and unrealized gains and losses for investment securities classified as "Available-For-Sale" or "Held-to-Maturity" were as follows at December 31, 2012 and 2011:

	Available-for-Sale Securities
(Amounts in thousands)			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
December 31, 2012:		Cost		Gains		Losses		Value
Obligations of U.S. Government Corporations and Agencies:
Mortgage-backed	$	41,946	$	2,090	$	(193	)	$	43,843
Other		29,076		159		(203	)		29,032
Obligations of state and political subdivisions		160,829		16,163		(39	)		176,953
Corporate securities		43,902		673		(68	)		44,507
Marketable equity securities		1,533		454		(10	)		1,977
Restricted equity securities		4,883		0		0			4,883
Total	$	282,169	$	19,539	$	(513	)	$	301,195

	Held-to-Maturity Securities
(Amounts in thousands)			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
December 31, 2012:		Cost		Gains		Losses	Value
Obligations of U.S. Government Corporations and Agencies:
Mortgage-backed	$	88	$	4	$	0	$	92
Other		2,006		24		0		2,030
Obligations of state and political subdivisions		467		10		0		477
Total	$	2,561	$	38	$	0	$	2,599

	Available-for-Sale Securities
(Amounts in thousands)			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
December 31, 2011:	Cost		Gains		Losses			Value
Obligations of U.S. Government Corporations and Agencies:
Mortgage-backed	$	64,892	$	2,930	$	(41	)	$	67,781
Other		13,187		94		(6	)		13,275
Obligations of state and political subdivisions		177,139		11,846		(2,200	)		186,785
Corporate securities		60,263		373		(1,394	)		59,242
Marketable equity securities		1,574		292		(125	)		1,741
Restricted equity securities		5,189		0		0			5,189
Total	$	322,244	$	15,535	$	(3,766	)	$	334,013

	Held-to-Maturity Securities
(Amounts in thousands)			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
December 31, 2011:	Cost		Gains		Losses		Value
Obligations of U.S. Government Corporations and Agencies:
Mortgage-backed	$	124	$	4	$	0	$	128
Other		2,014		46		0		2,060
Obligations of state and political subdivisions		467		11		0		478
Total	$	2,605	$	61	$	0	$	2,666

Securities Available-for-Sale with an aggregate fair value of $165,810,000 in 2012 and $182,478,000 in 2011, and securities Held-to-Maturity with an aggregate book value of $1,094,000 in 2012 and $2,138,000 in 2011, were pledged to secure public funds, trust funds, securities sold under agreements to repurchase, FHLB advances and other balances of $94,101,000 in 2012 and $106,647,000 in 2011 as required by law.

The amortized cost, estimated fair value and weighted average yield of debt securities, by contractual maturity, are shown below at December 31, 2012. 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.

(Amounts in thousands)

	December 31, 2012
	U.S. Government			Obligations
	Corporations &			of State			Marketable			Restricted
	Agencies			& Political			Equity			Equity			Corporate
	Obligations¹			Subdivisions²			Securities³			Securities³			Securities
Available-For-Sale:
Within 1 Year:
Amortized cost	$	0		$	200		$	0		$	0		$	17,150
Estimated fair value		0			201			0			0			17,238
Weighted average yield		0			6.83	%		0			0			3.09	%
1 - 5 Years:
Amortized cost		12,120			3,237			0			0			25,261
Estimated fair value		12,233			3,452			0			0			25,720
Weighted average yield		1.03	%		4.65	%		0			0			2.28	%
5 - 10 Years:
Amortized cost		3,677			10,948			0			0			1,491
Estimated fair value		3,954			12,279			0			0			1,549
Weighted average yield		4.66	%		5.52	%		0			0			5.76	%
After 10 Years:
Amortized cost		55,225			146,444			1,533			4,883			0
Estimated fair value		56,688			161,021			1,977			4,883			0
Weighted average yield		3.04	%		6.30	%		3.93	%		0.19	%		0
Total:
Amortized cost	$	71,022		$	160,829		$	1,533		$	4,883		$	43,902
Estimated fair value		72,875			176,953			1,977			4,883			44,507
Weighted average yield		2.78	%		6.21	%		3.93	%		0.19	%		2.72	%

_______________________

¹Mortgage-backed securities are allocated for maturity reporting at their original maturity date.

²Average yields on tax-exempt obligations of state and political subdivisions have been computed on a tax-equivalent basis using a 34% tax rate.

³Marketable equity securities and restricted equity securities are not considered to have defined maturities and are included in the after ten year category.

(Amounts in thousands)

	December 31, 2012
	U.S. Government			Obligations
	Corporations &			of State			Marketable		Restricted
	Agencies			& Political			Equity		Equity		Corporate
	Obligations¹			Subdivisions²			Securities³		Securities³		Securities
Held-to-Maturity:
Within 1 Year:
Amortized cost	$	1,006		$	0		$	0	$	0	$	0
Estimated fair value		1,017			0			0		0		0
Weighted average yield		1.78	%		0			0		0		0
1 - 5 Years:
Amortized cost		1,088			0			0		0		0
Estimated fair value		1,105			0			0		0		0
Weighted average yield		0.93	%		0			0		0		0
5 - 10 Years:
Amortized cost		0			0			0		0		0
Estimated fair value		0			0			0		0		0
Weighted average yield		0			0			0		0		0
After 10 Years:
Amortized cost		0			467			0		0		0
Estimated fair value		0			477			0		0		0
Weighted average yield		0			7.14	%		0		0		0
Total:
Amortized cost	$	2,094		$	467		$	0	$	0	$	0
Estimated fair value		2,122			477			0		0		0
Weighted average yield		1.34	%		7.14	%		0		0		0

_______________________

¹Mortgage-backed securities are allocated for maturity reporting at their original maturity date.

²Average yields on tax-exempt obligations of state and political subdivisions have been computed on a tax-equivalent basis using a 34% tax rate.

³Marketable equity securities and restricted equity securities are not considered to have defined maturities and are included in the after ten year category.

There were no aggregate investments with a single issuer (excluding the U.S. Government and its agencies) which exceeded ten percent of consolidated stockholders' equity at December 31, 2012. The quality rating of the obligations of state and political subdivisions are generally investment grade, as rated by Moody's, Standard and Poor's or Fitch. The typical exceptions are local issues which are not rated, but are secured by the full faith and credit obligations of the communities that issued these securities.

Proceeds from the sales of investments in Available-for-Sale debt and equity securities during 2012, 2011 and 2010 were $50,777,000, $65,812,000 and $34,467,000, respectively. Gross gains realized on these sales were $1,762,000, $1,143,000 and $601,000, respectively. Gross losses on these sales were $949,000, $1,032,000 and $438,000, respectively. There were no impairment losses in 2012, 2011 and 2010.

There were no proceeds from sales of investments in Held-to-Maturity debt and equity securities during 2012, 2011 and 2010. There were no gains or losses realized on Held-to-Maturity debt and equity securities during these periods.

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. Investment securities classified as available-for-sale or held-to-maturity are generally evaluated for OTTI under FASB ASC 320, Investments - Debt and Equity Securities. In determining OTTI under the FASB ASC 320 model, management considers many factors, including (1) the length of time and the extent to which the fair value has been less than 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 entity 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 other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

When other-than-temporary impairment occurs, the amount of the other-than-temporary impairment 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 other-than-temporary impairment shall be recognized in earnings equal to the entire difference between the investment's amortized cost basis and its 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 basis less any current-period loss, the other-than-temporary impairment shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total other-than-temporary impairment 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 other-than-temporary impairment related to the other factors shall be recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the other-than-temporary impairment recognized in earnings shall become the new amortized cost basis of the investment.

The fair market value of the equity securities tends to fluctuate with the overall equity markets as well as the trends specific to each institution. The equity securities portfolio is reviewed in a similar manner as that of the debt securities with greater emphasis placed on the length of time the market value has been less than the carrying value and the financial sector outlook. The Corporation also reviews dividend payment activities, levels of non-performing assets and loan loss reserves. The starting point for the equity analysis is the length and severity of market value decline. The Corporation and its investment advisors monitor the entire portfolio monthly with particular attention given to securities in a continuous loss position of at least ten percent for over twelve months. Based on the factors described above, management did not consider any equity securities to be other-than-temporary impaired at December 31, 2012 and 2011.

In accordance with disclosures required by FASB ASC 320-10-50, Investments - Debt and Equity Securities, the summary below shows the gross unrealized losses and fair value of the Corporation's investments, aggregated by investment category, that individual securities have been in a continuous unrealized loss position for less than 12 months or 12 months or more as of December 31, 2012 and 2011:

December 31, 2012

	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Amounts in thousands)	Value		Loss		Value		Loss		Value		Loss

Direct obligations of the U.S. Government	$	12,519	$	203	$	0	$	0	$	12,519	$	203
Mortgage-backed securities		10,174		193		0		0		10,174		193
Municipal bonds		1,651		14		338		25		1,989		39
Corporate securities		1,924		48		1,480		20		3,404		68
Marketable equity securities		312		10		0		0		312		10
	$	26,580	$	468	$	1,818	$	45	$	28,398	$	513

December 31, 2011

	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Amounts in thousands)	Value		Loss		Value		Loss		Value		Loss

Direct obligations of the U.S. Government	$	6,118	$	6	$	0	$	0	$	6,118	$	6
Mortgage-backed securities		7,806		41		0		0		7,806		41
Municipal bonds		2,455		11		10,518		2,189		12,973		2,200
Corporate securities		32,162		1,185		1,791		209		33,953		1,394
Marketable equity securities		82		20		754		105		836		125
	$	48,623	$	1,263	$	13,063	$	2,503	$	61,686	$	3,766

The Corporation invests in various forms of agency debt including mortgage backed securities and callable debt. The mortgage backed securities are issued by FHLMC ("Federal Home Loan Mortgage Corporation") or FNMA ("Federal National Mortgage Association"). The municipal securities consist of general obligations and revenue bonds. The marketable equity securities consist of stocks in other bank holding companies. The fair market value of the above securities is influenced by market interest rates, prepayment speeds on mortgage securities, bid-offer spreads in the market place and credit premiums for various types of agency debt. These factors change continuously and therefore the market value of these securities may be higher or lower than the Corporation's carrying value at any measurement date. Management does not believe any of their 17 securities in an unrealized loss position as of December 31, 2012 represents an other-than-temporary impairment. The Corporation has the ability to hold the remaining securities contained in the above table for a time necessary to recover the cost.

Securities with an unrealized loss that are determined to be other-than-temporary are written down to fair value, with the write-down recorded as a realized loss included in investment securities gains (losses) expense-net on the consolidated statements of income.