3. Securities

The following tables summarize the amortized costs and estimated fair values of securities available-for-sale ("AFS"), as of the dates indicated:

	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
December 31, 2012
Available-for-sale
Obligations of states and political subdivisions	$	31,112	$	1,928	$	-		$	33,040
Mortgage-backed securities issued or guaranteed by U.S. government sponsored enterprises		345,528		12,699		(79	)		358,148
Collateralized mortgage obligations issued or guaranteed by U.S. government sponsored enterprises		375,627		6,181		(120	)		381,688
Private issue collateralized mortgage obligations		8,871		-		(697	)		8,174
Total securities available-for-sale	$	761,138	$	20,808	$	(896	)	$	781,050
December 31, 2011
Available-for-sale
Obligations of U.S. government sponsored enterprises	$	29,996	$	116	$	(5	)	$	30,107
Obligations of states and political subdivisions		37,138		2,620		-			39,758
Mortgage-backed securities issued or guaranteed by U.S. government sponsored enterprises		361,073		15,861		-			376,934
Collateralized mortgage obligations issued or guaranteed by U.S. government sponsored enterprises		127,153		1,628		(331	)		128,450
Private issue collateralized mortgage obligations		12,557		-		(1,916	)		10,641
Total debt securities		567,917		20,225		(2,252	)		585,890
Equity securities		5,000		-		(854	)		4,146
Total securities available-for-sale	$	572,917	$	20,225	$	(3,106	)	$	590,036

Net unrealized gains on AFS at December 31, 2012 and 2011 and included in accumulated other comprehensive income amounted to $12.9 million and $11.1 million, net of deferred taxes of $7.0 million and $6.0 million, respectively.

Impaired Securities

Management periodically reviews the Company's investment portfolio to determine the cause, magnitude and duration of declines in the fair value of each security. Thorough evaluations of the causes of the unrealized losses are performed to determine whether the impairment is temporary or other-than-temporary in nature. Considerations such as the ability of the securities to meet cash flow requirements, levels of credit enhancements, risk of curtailment, recoverability of invested amount over a reasonable period of time and the length of time the security is in a loss position, for example, are applied in determining other-than-temporary impairment ("OTTI"). Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.

The following table presents the estimated fair values and gross unrealized losses of investment securities that were in a continuous loss position at December 31, 2012 and 2011, by length of time that individual securities in each category have been in a continuous loss position:

	Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
December 31, 2012
Mortgage-backed securities	$	42,782	$	(79	)	$	-	$	-		$	42,782	$	(79	)
Collateralized mortgage obligations		73,098		(120	)		-		-			73,098		(120	)
Private issue collateralized mortgage obligations		-		-			8,174		(697	)		8,174		(697	)
Total	$	115,880	$	(199	)	$	8,174	$	(697	)	$	124,054	$	(896	)
December 31, 2011
U.S. government sponsored enterprises	$	9,995	$	(5	)	$	-	$	-		$	9,995	$	(5	)
Collateralized mortgage obligations		37,994		(331	)		-		-			37,994		(331	)
Private issue collateralized mortgage obligations		-		-			10,641		(1,916	)		10,641		(1,916	)
Equity securities		-		-			4,146		(854	)		4,146		(854	)
Total	$	47,989	$	(336	)	$	14,787	$	(2,770	)	$	62,776	$	(3,106	)

At December 31, 2012, the Company held $124.1 million in investment securities with unrealized losses that are considered temporary. Included in the unrealized losses were $7.5 million in non-agency private issue collateralized mortgage obligations ("non-agency") which have been downgraded to non-investment grade. The Company's share of these downgraded non-agencies is in the senior tranches. Management believes the unrealized losses for the non-agencies are the result of current market illiquidity and the underestimation of value in the market. Including the non-agencies, there were 11 securities with a fair value of $8.2 million in the investment portfolio which had unrealized losses for twelve months or longer. Management currently has the intent and ability to retain these investment securities with unrealized losses until the decline in value has been recovered. Stress tests are performed regularly on the higher risk bonds in the investment portfolio using current statistical data to determine expected cash flows and forecast potential losses. The results of the stress tests during 2012 and at December 31, 2012, indicated potential future credit losses in the most likely scenario on two securities for which the Company recorded $39,000 in OTTI write-downs during 2012.

At December 31, 2011, $62.8 million of the Company's investment securities had unrealized losses that were primarily considered temporary. A large portion of the unrealized loss was related to the non-agencies, which includes $9.7 million that have been downgraded to non-investment grade. Including the non-agencies, there were 20 securities with a fair value of $14.8 million in the portfolio which had unrealized losses for twelve months or longer.

Security Gains and Losses and Other-Than-Temporary Impairment of Securities

The following table details the Company's sales of investment securities, the gross realized gains and losses, and impairment of securities:

	Years Ended December 31,
	2012			2011			2010
Available for sale
Proceeds from sales of securities	$	115,493		$	54,600		$	4,210
Gross realized gains		2,826			2,258			-
Gross realized (losses)		(289	)		(73	)		(188	)
Other-than-temporary impairment of securities		(39	)		(109	)		(221	)

During 2012, the Company sold certain investment securities with a total carrying value of $113.0 million in order to manage its liquidity and interest rate risk. The securities that were sold were primarily selected based on an assessment of their prepayment speed. One non-agency investment security, which had previously recorded $176,000 in OTTI, was sold due to the recent deterioration in its credit quality.

During 2011, the Company sold sixteen municipal bonds totaling $7.3 million that the Company was monitoring that either had below "A" ratings, split ratings, withdrawn ratings, negative outlooks or were revenue bonds. Due to continued pressure on state and local government revenues around the country as municipalities struggle with a weak economy, management decided to sell these securities. The Company also sold one $10.2 million agency security, thirty-one pass through securities totaling $29.3 million, and three non-agencies totaling $7.8 million. The Company had not recorded any OTTI on these securities.

During 2010, the Company sold one investment that had been downgraded to non-investment grade in 2009 and, although the Company's tranche was comprised of high quality loans, credit support had declined noticeably due to poor performance of other tranches in the months prior to the sale. The Company had not recorded any OTTI on this security; however, with the increased deterioration and an increase in market price, in a relatively illiquid market for the non-agency sector, management decided to sell the security.

Securities Pledged

At December 31, 2012 and 2011, securities with an amortized cost of $465.0 million and $435.8 million, respectively, and estimated fair values of $482.4 million and $454.2 million, respectively, were pledged to secure FHLBB advances, public deposits, and securities sold under agreements to repurchase, and for other purposes required or permitted by law.

Contractual Maturities

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

	Amortized Cost		Fair Value
Available-for-sale
Due in one year or less	$	3,395	$	3,438
Due after one year through five years		21,520		22,342
Due after five years through ten years		141,215		146,362
Due after ten years		595,008		608,908
	$	761,138	$	781,050