2. Investment Securities

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

	March 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale:
U.S. Government sponsored enterprises	$	13,195	$	8	$	17	$	13,186
Obligations of state and political subdivisions		73,186		3,997		4		77,179
GSE mortgage-backed securities		162,299		5,137		116		167,320
Asset-backed securities		12,174		454		-		12,628
Collateralized mortgage obligations: residential		86,784		629		160		87,253
Collateralized mortgage obligations: commercial		28,452		1,241		-		29,693
Collateralized debt obligation		464		63		-		527
	$	376,554	$	11,529	$	297	$	387,786

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale:
U.S. Government sponsored enterprises	$	13,422	$	2	$	-	$	13,424
Obligations of state and political subdivisions		83,093		4,328		-		87,421
GSE mortgage-backed securities		172,932		5,887		-		178,819
Collateralized mortgage obligations: residential		101,381		652		47		101,986
Collateralized mortgage obligations: commercial		28,528		1,233		-		29,761
Other asset-backed securities		12,245		497		-		12,742
Collateralized debt obligation		464		-		-		464
	$	412,065	$	12,599	$	47	$	424,617

	March 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Held-to-maturity:
Obligations of state and political subdivisions	$	44,443	$	201	$	481	$	44,163
GSE mortgage-backed securities		91,968		2,315		29		94,254
Collateralized mortgage obligations: residential		15,026		-		90		14,936
Collateralized mortgage obligations: commercial		16,180		644		-		16,824
	$	167,617	$	3,160	$	600	$	170,177

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Held-to-maturity:
Obligations of state and political subdivisions	$	42,900	$	7	$	7	$	42,900
GSE mortgage-backed securities		89,383		2,819		-		92,202
Collateralized mortgage obligations: residential		5,009		-		-		5,009
Collateralized mortgage obligations: commercial		16,232		581		-		16,813
	$	153,524	$	3,407	$	7	$	156,924

With the exception of 3 private-label collateralized mortgage obligations ("CMOs") with a combined balance remaining of $83,000 at March 31, 2013, all of the Company's CMOs are government-sponsored enterprise ("GSE") securities.

Effective January 1, 2013, an adjustment was made to the premium amortization method of the pass-through mortgage-backed securities ("MBSs") and the CMOs. Previously, the premiums were amortized over the average life of the securities which resulted in greater amortization taken in the early years of the bond's life. The change provides for the premium amortization to be calculated based on 2 times the average life on MBSs and on final principal window for the CMOs, together with the related premium amortization based on principal pay-downs. The adjustment was made to more closely reflect the level yield method as required by GAAP and resulted in an increase in interest income on investment securities of approximately $73,000 for the three months ended March 31, 2013, or approximately $0.02 diluted earnings per share on an annualized basis.

The amortized cost and fair value of debt securities at March 31, 2013 by contractual maturity are shown in the following table (in thousands) with the exception of other asset-backed securities, MBS, CMOs, and the collateralized debt obligation. 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	$	13,977	$	14,152
Due after one year through five years		44,507		46,369
Due after five years through ten years		22,706		24,462
Due after ten years		5,191		5,382
Other asset-backed securities		12,174		12,628
Mortgage-backed securities and collateralized mortgage obligations:
Residential		249,083		254,573
Commercial		28,452		29,693
Collateralized debt obligation		464		527
	$	376,554	$	387,786

	Amortized Cost		Fair Value
Held-to-maturity:
Due in one year or less	$	306	$	307
Due after one year through five years		1,152		1,154
Due after five years through ten years		6,218		6,329
Due after ten years		36,767		36,373
Mortgage-backed securities and collateralized mortgage obligations:
Residential		106,994		109,190
Commercial		16,180		16,824
	$	167,617	$	170,177

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

	March 31, 2013
	Securities with losses under 12 months				Securities with losses over 12 months				Total
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Available-for-sale:
U.S. Government sponsored enterprises	$	5,512	$	17	$	-	$	-	$	5,512	$	17
Obligations of state and political subdivisions		491		4		-		-		491		4
GSE mortgage-backed securities		34,310		116		-		-		34,310		116
Collateralized mortgage obligations: residential		19,920		159		82		1		20,002		160
	$	60,233	$	296	$	82	$	1	$	60,315	$	297

	December 31, 2012
	Securities with losses under 12 months				Securities with losses over 12 months				Total
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Available-for-sale: Collateralized mortgage obligations: residential	$	10,085	$	45	$	96	$	2	$	10,181	$	47

	March 31, 2013
	Securities with losses under 12 months				Securities with losses over 12 months				Total
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Held-to-maturity:
Obligations of state and political subdivisions	$	29,289	$	481	$	-	$	-	$	29,289	$	481
GSE mortgage-backed securities		9,996		29		-		-		9,996		29
Collateralized mortgage obligations: residential		14,936		90						14,936		90
	$	54,221	$	600	$	-	$	-	$	54,221	$	600

	December 31, 2012
	Securities with losses under 12 months				Securities with losses over 12 months				Total
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Held-to-maturity: Obligations of state and political subdivisions	$	1,128	$	7	$	-	$	-	$	1,128	$	7

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 March 31, 2013 resulted from changing market interest rates over the yields available at the time the underlying securities were purchased. Of the four US government sponsored securities classified as available-for-sale, one contained unrealized losses at March 31, 2013. Of the 122 obligations of state and political subdivisions classified as available-for-sale, one contained unrealized losses at March 31, 2013. Of the 82 GSE mortgage-backed securities classified as available-for-sale, eight contained unrealized losses at March 31, 2013. Of the 36 residential collateralized mortgage obligations classified as available-for-sale, seven contained unrealized losses at March 31, 2013. Management identified no impairment related to credit quality. At March 31, 2013, 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 three months ended March 31, 2013.

During the three months ended March 31, 2013, the Company sold 21 securities classified as available-for-sale at a net gain of $204,000. Of the 21 securities sold, 18 securities were sold with gains totaling $217,000 and three securities were sold at a loss of $13,000. During the three months ended March 31, 2012, the Company did not sell any securities.

Securities with an aggregate carrying value of approximately $302.1 million and $226.2 million at March 31, 2013 and December 31, 2012, respectively, were pledged to secure public funds on deposit and for other purposes required or permitted by law.