3. INVESTMENT SECURITIES

The cost basis and fair values of investment securities are summarized as follows:

Investment securities available for sale:

AT DECEMBER 31, 2012

COST BASIS

GROSS UNREALIZED GAINS

GROSS UNREALIZED LOSSES

FAIR
VALUE

(IN THOUSANDS)

U.S. Agency

5,848

(7)

5,911

Corporate bonds

7,992

(103)

7,892

U.S. Agency mortgage-backed securities

131,425

6,320

(10)

137,735

Total

145,265

6,393

(120)

151,538

Investment securities held to maturity:

AT DECEMBER 31, 2012

COST BASIS

GROSS UNREALIZED GAINS

GROSS UNREALIZED LOSSES

FAIR
VALUE

(IN THOUSANDS)

U.S. Agency mortgage-backed securities

9,318

578

9,896

Taxable municipal

410

416

Corporate bonds and other securities

3,995

(55)

3,954

Total

13,723

598

(55)

14,266

Investment securities available for sale:


	AT DECEMBER 31, 2011
	COST BASIS		GROSS UNREALIZED GAINS		GROSS UNREALIZED LOSSES			FAIR VALUE
	(IN THOUSANDS)
U.S. Agency	$	10,689	$	48	$	(28	)	$	10,709
U.S. Agency mortgage-backed securities		165,484		6,737		(7	)		172,214
Total	$	176,173	$	6,785	$	(35	)	$	182,923

Investment securities held to maturity:


	AT DECEMBER 31, 2011
	COST BASIS		GROSS UNREALIZED GAINS		GROSS UNREALIZED LOSSES			FAIR VALUE
	(IN THOUSANDS)
U.S. Agency mortgage-backed securities	$	9,280	$	643	$	-		$	9,923
Other securities		3,000		-		(9	)		2,991
Total	$	12,280	$	643	$	(9	)	$	12,914

Maintaining investment quality is a primary objective of the Company's investment policy which, subject to certain limited exceptions, prohibits the purchase of any investment security below a Moody's Investors Service or Standard & Poor's rating of A. At December 31, 2012, 92.2% of the portfolio was rated AAA as compared to 98.4% at December 31, 2011. 1.3% of the portfolio was rated below A or unrated on December 31, 2012. The Company and its subsidiaries, collectively, did not hold securities of any single issuer, excluding U.S. Treasury and U.S. Agencies, that exceeded 10% of shareholders' equity at December 31, 2012.

The book value of securities, both available for sale and held to maturity, pledged to secure public and trust deposits, and certain Federal Home Loan Bank borrowings was $94,206,000 at December 31, 2012 and $83,235,000 at December 31, 2011.

The Company realized $12,000 of gross investment security gains and no investment security losses in 2012, and $358,000 of gross investment losses and no investment security gains in 2011, and $157,000 of gross investment gains and no investment security losses in 2010. On a net basis, the realized gain for 2012 was $8,000 after factoring in tax expense of $4,000, the realized loss for 2011 was $236,000, after factoring the tax benefit of $122,000, and the realized gain for 2010 was $104,000, after factoring the tax expense of $53,000. Proceeds from sales of investment securities available for sale were $4.2 million for 2012, $16.5 million for 2011, and $2.7 million during 2010.

The following table sets forth the contractual maturity distribution of the investment securities, cost basis and fair market values, and the weighted average yield for each type and range of maturity as of December 31, 2012. Yields are not presented on a tax-equivalent basis, but are based upon the cost basis and are weighted for the scheduled maturity. The Company's consolidated investment securities portfolio had a modified duration of approximately 1.73 years. The weighted average expected maturity for available for sale securities at December 31, 2012 for U.S. Agency, U.S. Agency Mortgage-Backed and Corporate bond securities was 4.29, 2.81 and 3.92 years, respectively. The weighted average expected maturity for held to maturity securities at December 31, 2012 for U.S. Agency Mortgage-Backed and Corporate bonds and other securities were 3.10 and 4.88 years.

Investment securities available for sale:

AT DECEMBER 31, 2012

U. S. AGENCY

U.S. AGENCY MORTGAGE-
BACKED SECURITIES

CORPORATE BONDS

TOTAL INVESTMENT SECURITIES AVAILABLE FOR SALE

(IN THOUSANDS, EXCEPT YIELDS)

COST BASIS

Within 1 year

After 1 year but within
5 years

4,848

1.42

7,992

3.55

12,840

2.73

After 5 years but within 10 years

1,000

1.43

14,347

3.30

15,347

3.18

After 10 years but within 15 years

58,603

2.90

58,603

2.90

Over 15 years

58,475

2.89

58,475

2.89

Total

5,848

1.42

131,425

2.94

7,992

3.55

145,265

2.91

FAIR VALUE

Within 1 year

After 1 year but within
5 years

4,918

7,892

12,810

After 5 years but within 10 years

993

15,134

16,127

After 10 years but within 15 years

61,404

Over 15 years

61,197

Total

5,911

137,735

7,892

151,538

Investment securities held to maturity:

AT DECEMBER 31, 2012

U.S. AGENCY MORTGAGE-BACKED SECURITIES

CORPORATE BONDS AND OTHER

TOTAL INVESTMENT SECURITIES HELD TO MATURITY

(IN THOUSANDS, EXCEPT YIELDS)

COST BASIS

Within 1 year

2,000

1.46%

2,000

1.46%

After 1 year but within 5 years

1,000

1.44

1,000

1.44

After 5 years but within 10 years

After 10 years but within 15 years

410

2.92

410

2.92

Over 15 years

9,318

3.65

995

4.04

10,313

3.69

Total

9,318

3.65

4,405

2.17

13,723

3.18

FAIR VALUE

Within 1 year

1,981

After 1 year but within 5 years

965

After 5 years but within 10 years

After 10 years but within 15 years

416

Over 15 years

9,896

1,008

10,904

Total

9,896

4,370

14,266

The following tables present information concerning investments with unrealized losses as of December 31, 2012 (in thousands):

Investment securities available for sale:

LESS THAN 12 MONTHS

12 MONTHS OR LONGER

TOTAL

FAIR VALUE

UNREALIZED LOSSES

FAIR VALUE

UNREALIZED LOSSES

FAIR VALUE

UNREALIZED LOSSES

U.S. Agency

993

(7)

993

(7)

U.S. Agency mortgage-backed securities

1,140

(8)

349

(2)

1,489

(10)

Corporate bonds

6,898

(103)

6,898

(103)

Total

9,031

(118)

349

(2)

9,380

(120)

Investment securities held to maturity:

LESS THAN 12 MONTHS

12 MONTHS OR LONGER

TOTAL

FAIR VALUE

UNREALIZED LOSSES

FAIR VALUE

UNREALIZED LOSSES

FAIR VALUE

UNREALIZED LOSSES

Corporate bonds and other securities

965

(35)

1,981

(20)

2,946

(55)

Total

965

(35)

1,981

(20)

2,946

(55)

The following tables present information concerning investments with unrealized losses as of December 31, 2011 (in thousands):

Investment securities available for sale:


	LESS THAN 12 MONTHS					12 MONTHS OR LONGER				TOTAL
	FAIR VALUE		UNREALIZED LOSSES			FAIR VALUE		UNREALIZED LOSSES		FAIR VALUE		UNREALIZED LOSSES
U.S. Agency	$	3,161	$	(28	)	$	-	$	-	$	3,161	$	(28	)
U.S. Agency mortgage-backed securities		613		(7	)		-		-		613		(7	)
Total	$	3,774	$	(35	)	$	-	$	-	$	3,774	$	(35	)

Investment securities held to maturity:


	LESS THAN 12 MONTHS					12 MONTHS OR LONGER				TOTAL
	FAIR VALUE		UNREALIZED LOSSES			FAIR VALUE		UNREALIZED LOSSES		FAIR VALUE		UNREALIZED LOSSES
Other securities	$	1,991	$	(9	)	$	-	$	-	$	1,991	$	(9	)
Total	$	1,991	$	(9	)	$	-	$	-	$	1,991	$	(9	)

The unrealized losses are primarily a result of increases in market yields from the time of purchase. In general, as market yields rise, the value of securities will decrease; as market yields fall, the fair value of securities will increase. There are 13 positions that are considered temporarily impaired at December 31, 2012. Management generally views changes in fair value caused by changes in interest rates as temporary; therefore, these securities have not been classified as other-than-temporarily impaired. Management has also concluded that based on current information we expect to continue to receive scheduled interest payments as well as the entire principal balance. Furthermore, management does not intend to sell these securities and does not believe it will be required to sell these securities before they recover in value or mature.