3.	Investment Securities

Debt and equity securities have been classified in the consolidated balance sheets according to management’s intent. Investment securities at June 30, 2011 and December 31, 2010 are summarized as follows:


(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

June 30, 2011
Securities available for sale:
Agency mortgage-backed securities	$	11,720	$	618	$	0	$	12,338
Agency CMO		19,063		192		10		19,245
Privately-issued CMO		1,166		21		29		1,158
Other debt securities:
Agency notes and bonds		46,008		403		7		46,404
Municipal obligations		28,608		820		40		29,388

Subtotal - debt securities		106,565		2,054		86		108,533


Mutual funds		2,673		43		22		2,694


Total Securities available for sale	$	109,238	$	2,097	$	108	$	111,227


Securities held to maturity:
Agency mortgage-backed securities	$	17	$	0	$	0	$	17


Total securities held to maturity	$	17	$	0	$	0	$	17


December 31, 2010
Securities available for sale:
Agency mortgage-backed securities	$	12,101	$	580	$	0	$	12,681
Agency CMO		11,987		46		65		11,968
Privately-issued CMO		1,688		10		46		1,652
Other debt securities:
Agency notes and bonds		42,400		297		317		42,380
Municipal obligations		29,366		371		281		29,456

Subtotal - debt securities		97,542		1,304		709		98,137


Mutual funds		2,705		36		27		2,714


Total Securities available for sale	$	100,247	$	1,340	$	736	$	100,851


Securities held to maturity:
Agency mortgage-backed securities	$	18	$	0	$	0	$	18
Municipal obligations		14		0		0		14


Total securities held to maturity	$	32	$	0	$	0	$	32

Agency notes and bonds, agency mortgage-backed securities and agency collateralized mortgage obligations (CMO) include securities issued by the Government National Mortgage Association (GNMA), a U.S. government agency, and the Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC) and the Federal Home Loan Bank (FHLB), which are government-sponsored enterprises. Privately-issued CMO are complex securities issued by special-purpose entities that are generally collateralized by first position residential mortgage loans and first position residential home equity loans.

The amortized cost and fair value of debt securities as of June 30, 2011, by contractual maturity, are shown below. Expected maturities of mortgage-backed securities may differ from contractual maturities because the mortgages underlying the obligations may be prepaid without penalty.


	Securities Available for Sale				Securities Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
(In thousands)

Due in one year or less	$	3,102	$	3,134	$	0	$	0
Due after one year through five years		13,222		13,398		0		0
Due after five years through ten years		14,391		14,681
Due after ten years		43,901		44,579		0		0

		74,616		75,792		0		0
Mortgage-backed securities and CMO		31,949		32,741		17		17


	$	106,565	$	108,533	$	17	$	17

Information pertaining to investment securities available for sale with gross unrealized losses at June 30, 2011, aggregated by investment category and the length of time that individual investment securities have been in a continuous position, follows:


	Number of Investment Positions		Fair Value		Gross Unrealized Losses
(Dollars in thousands)
Continuous loss position less than twelve months:
Agency CMO		5	$	4,511	$	10
Agency notes and bonds		4		4,733		7
Municipal obligations		4		1,377		15

Total less than twelve months		13		10,621		32

Continuous loss position more than twelve months:
Privately-issued CMO		1		369		29
Municipal obligations		2		905		25
Mutual fund		1		349		22

Total more than twelve months		4		1,623		76

Total securities available for sale		17	$	12,244	$	108

Management evaluates securities for other-than-temporary impairment at least quarterly, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

At June 30, 2011, the 15 U.S. government agency debt securities, including agency notes and bonds, mortgage-backed securities and CMO, and municipal obligations in a loss position had depreciated approximately 0.5% from the amortized cost basis. All of the U.S. government agency securities and municipal obligations are issued by U.S. government agencies, government-sponsored enterprises and municipal governments, or are secured by first mortgage loans and municipal project revenues. These unrealized losses related principally to current interest rates for similar types of securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government, its agencies or other governments, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. As the Company has the ability to hold the debt securities until maturity, or the foreseeable future if classified as available for sale, no declines are deemed to be other-than-temporary.

At June 30, 2011, the privately-issued CMO in a loss position had depreciated approximately 7.3% from the amortized cost basis. The Company evaluates the existence of a potential credit loss component related to the decline in fair values of the privately-issued CMO portfolio each quarter using an independent third party analysis. At June 30, 2011, the Company holds one privately-issued CMO with an amortized cost of $398,000 and a fair value of $369,000 that was downgraded to a substandard regulatory classification in 2009 due to a downgrade of the security’s credit quality by various rating agencies. Based on the independent third party analysis performed in June 2011, the Company expects to collect the contractual principal and interest cash flows for this security, and, as a result, no other-than-temporary impairment has been recognized. While the Company did not recognize a credit-related impairment loss at June 30, 2011, additional deterioration in market and economic conditions may have an adverse impact on the credit quality in the future.