3. INVESTMENT SECURITIES

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

Investment securities available for sale:

AT DECEMBER 31, 2013

COST BASIS

GROSS UNREALIZED GAINS

GROSS UNREALIZED LOSSES

FAIR
VALUE

(IN THOUSANDS)

U.S. Agency

6,926

(126)

6,835

Corporate bonds

11,992

(252)

11,761

U.S. Agency mortgage-backed securities

121,480

3,129

(1,227)

123,382

Total

140,398

3,185

(1,605)

141,978

Investment securities held to maturity:

AT DECEMBER 31, 2013

COST BASIS

GROSS UNREALIZED GAINS

GROSS UNREALIZED LOSSES

FAIR
VALUE

(IN THOUSANDS)

U.S. Agency mortgage-backed securities

12,671

289

(477)

12,483

Taxable municipal

1,521

(120)

1,401

Corporate bonds and other securities

3,995

(91)

3,904

Total

18,187

289

(688)

17,788

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	$	70	$	(7	)	$	5,911
Corporate bonds		7,992		3		(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		6		-			416
Corporate bonds and other securities		3,995		14		(55	)		3,954
Total	$	13,723	$	598	$	(55	)	$	14,266

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, 2013, 89.0% of the portfolio was rated AAA as compared to 92.2% at December 31, 2012. 1.9% of the portfolio was rated below A or unrated on December 31, 2013. 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, 2013.

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 $110,780,000 at December 31, 2013 and $94,206,000 at December 31, 2012.

The Company realized $289,000 of gross investment security gains and $85,000 of investment security losses in 2013, and $12,000 of gross investment gains and no investment security losses in 2012, and $358,000 of gross investment losses and no investment security gains in 2011. On a net basis, the realized gain for 2013 was $135,000 after factoring in tax expense of $69,000, 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. Proceeds from sales of investment securities available for sale were $11.2 million for 2013, $4.2 million for 2012, and $16.5 million during 2011.

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, 2013. 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 an effective duration of approximately 3.51 years. The weighted average expected maturity for available for sale securities at December 31, 2013 for U.S. Agency, U.S. Agency Mortgage-Backed and Corporate Bond securities was 3.84, 5.07 and 4.73 years, respectively. The weighted average expected maturity for held to maturity securities at December 31, 2013 for U.S. Agency Mortgage-Backed and Corporate Bonds/Taxable Municipals and other securities were 6.73 and 5.82 years.

Investment securities available for sale:

AT DECEMBER 31, 2013

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

5,926

1.50

1,813

4.54

7,994

1.56

15,733

1.90

After 5 years but within 10 years

1,000

1.43

12,381

2.88

3,998

1.91

17,379

2.59

After 10 years but within 15 years

64,347

2.74

64,347

2.74

Over 15 years

42,939

2.74

42,939

2.74

Total

6,926

1.49

121,480

2.78

11,992

1.68

140,398

2.63

FAIR VALUE

Within 1 year

After 1 year but within
5 years

5,898

1,934

7,947

15,779

After 5 years but within 10 years

937

12,735

3,814

17,486

After 10 years but within 15 years

64,751

Over 15 years

43,962

Total

6,835

123,382

11,761

141,978

Investment securities held to maturity:

AT DECEMBER 31, 2013

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

After 1 year but within 5 years

3,000

1.46

3,000

1.46

After 5 years but within 10 years

1,760

2.10

1,760

2.10

After 10 years but within 15 years

1,011

3.14

1,011

3.14

Over 15 years

10,911

3.49

1,505

4.54

12,416

3.62

Total

12,671

3.30

5,516

2.61

18,187

3.09

FAIR VALUE

Within 1 year

After 1 year but within 5 years

2,966

After 5 years but within 10 years

1,618

After 10 years but within 15 years

891

Over 15 years

10,865

1,448

12,313

Total

12,483

5,305

17,788

The following tables present information concerning investments with unrealized losses as of December 31, 2013 (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

3,812

(64)

938

(62)

4,750

(126)

U.S. Agency mortgage-backed
securities

43,402

(1,224)

669

(3)

44,071

(1,227)

Corporate bonds

6,777

(215)

1,963

(37)

8,740

(252)

Total

53,991

(1,503)

3,570

(102)

57,561

(1,605)

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/taxable municipals and other securities

3,801

(205)

994

(6)

4,795

(211)

U.S. Agency mortgage-backed securities

8,761

(477)

8,761

(477)

Total

12,562

(682)

994

(6)

13,556

(688)

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 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 60 positions that are considered temporarily impaired at December 31, 2013. 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.