3.	Investment Securities

The portfolio of investment securities consisted of the following (in thousands):

	September 30, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale:
U.S. Government sponsored enterprises	$	31,217	$	94	$	-	$	31,311
Obligations of state and political subdivisions		78,301		4,818		-		83,119
GSE mortgage-backed securities		138,129		7,382		-		145,511
Asset-backed securities		12,294		252		-		12,546
Collateralized mortgage obligations: residential		38,081		584		2		38,663
Collateralized mortgage obligations: commercial		28,701		1,319		-		30,020
	$	326,723	$	14,449	$	2	$	341,170

	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale:
U.S. Government sponsored enterprises	$	94,339	$	662	$	2	$	94,999
Obligations of state and political subdivisions		90,284		5,865		-		96,149
GSE mortgage-backed securities		105,409		4,078		-		109,487
Collateralized mortgage obligations: residential		40,855		618		5		41,468
Collateralized mortgage obligations: commercial		24,609		529		-		25,138
	$	355,496	$	11,752	$	7	$	367,241

	September 30, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Held-to-maturity:
Obligations of state and political subdivisions	$	2,318	$	14	$	4	$	2,328
GSE mortgage-backed securities		97,856		3,672		-		101,528
Collateralized mortgage obligations: commercial		17,454		659		-		18,113
	$	117,628	$	4,345	$	4	$	121,969

	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Held-to-maturity:
Obligations of state and political subdivisions	$	340	$	2	$	-	$	342
GSE mortgage-backed securities		82,497		550		-		83,047
Collateralized mortgage obligations: commercial		17,635		107		-		17,742
	$	100,472	$	659	$	-	$	101,131

With the exception of three private-label collateralized mortgage obligations ("CMOs") with a combined balance remaining of $107,000 at September 30, 2012, all of the Company's CMOs are government-sponsored enterprise ("GSE") securities.

The amortized cost and fair value of debt securities at September 30, 2012 by contractual maturity are shown in the following table (in thousands) with the exception of mortgage-backed securities and CMOs. Expected maturities may differ from contractual maturities for mortgage-backed securities and CMOs because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Fair Value
Available-for-sale:
Due in one year or less	$	41,178	$	41,389
Due after one year through five years		39,462		41,758
Due after five years through ten years		24,117		26,267
Due after ten years		4,761		5,016
Asset-backed securities		12,294		12,546
Mortgage-backed securities and collateralized mortgage obligations:
Residential		176,210		184,174
Commercial		28,701		30,020
	$	326,723	$	341,170

	Amortized Cost		Fair Value
Held-to-maturity:
Due in one year or less	$	200	$	201
Due after one year through five years		608		611
Due after five years through ten years		1,510		1,516
Mortgage-backed securities and collateralized mortgage obligations:
Residential		97,856		101,528
Commercial		17,454		18,113
	$	117,628	$	121,969

Details concerning investment securities with unrealized losses are as follows (in thousands):

	September 30, 2012
	Securities with losses under 12 months				Securities with losses over 12 months				Total
Available-for-sale:	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Collateralized mortgage obligations: residential	$	-	$	-	$	107	$	2	$	107	$	2

	December 31, 2011
	Securities with losses under 12 months				Securities with losses over 12 months				Total
Available-for-sale:	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
U.S. Government sponsored enterprises	$	6,204	$	2	$	-	$	-	$	6,204	$	2
Collateralized mortgage obligations: residential		1,849		1		136		4		1,985		5
	$	8,053	$	3	$	136	$	4	$	8,189	$	7

	September 30, 2012
	Securities with losses under 12 months				Securities with losses over 12 months				Total
Held-to-maturity:	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Obligations of state and political subdivisions	$	427	$	4	$	-	$	-	$	427	$	4

Management evaluates each quarter whether unrealized losses on securities represent impairment that is other than temporary. For debt securities, the Company considers its intent to sell the securities or if it is more likely than not the Company will be required to sell the securities. If such impairment is identified, based upon the intent to sell or the more likely than not threshold, the carrying amount of the security is reduced to fair value with a charge to earnings. Upon the result of the aforementioned review, management then reviews for potential other than temporary impairment based upon other qualitative factors. In making this evaluation, management considers changes in market rates relative to those available when the security was acquired, changes in market expectations about the timing of cash flows from securities that can be prepaid, performance of the debt security, and changes in the market's perception of the issuer's financial health and the security's credit quality. If determined that a debt security has incurred other than temporary impairment, then the amount of the credit related impairment is determined. If a credit loss is evident, the amount of the credit loss is charged to earnings and the non-credit related impairment is recognized through other comprehensive income.

The unrealized losses on debt securities at September 30, 2012 resulted from changing market interest rates over the yields available at the time the underlying securities were purchased. Of the 21 residential collateralized mortgage obligations classified as available-for-sale, 2 contained unrealized losses at September 30, 2012. Management identified no impairment related to credit quality. At September 30, 2012, management had the intent and ability to hold impaired securities and no impairment was evaluated as other than temporary. As a result, no other than temporary impairment losses were recognized during the nine months ended September 30, 2012.

During the nine months ended September 30, 2012, the Company sold six securities classified as available-for-sale at a net gain of $204,000. Of the six securities sold, five securities were sold with gains totaling $235,000 and one security was sold at a loss of $31,000. During the nine months ended September 30, 2011, the Company sold five securities classified as available-for-sale and one security classified as held-to-maturity. Of the available-for-sale securities, four securities were sold with gains totaling $94,000 and one security was sold at a loss of $4,000 for a net gain of $90,000. The decision to sell the one held-to-maturity security, which was sold at a gain of $9,000, was based on the inability to obtain current financial information on the municipality. The sale was consistent with action taken on other securities with a similar deficiency, as identified in an external review performed on the municipal securities portfolio.

Securities with an aggregate carrying value of approximately $152.3 million and $154.1 million at September 30, 2012 and December 31, 2011, respectively, were pledged to secure public funds on deposit and for other purposes required or permitted by law.