3.	Investment Securities

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


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

September 30, 2011
Securities available for sale:
Agency mortgage-backed securities	$	10,578	$	612	$	0	$	11,190
Agency CMO		21,150		165		49		21,266
Privately-issued CMO		1,031		18		38		1,011
Other debt securities:
Agency notes and bonds		42,194		552		4		42,742
Municipal obligations		26,905		1,372		0		28,277

Subtotal - debt securities		101,858		2,719		91		104,486


Mutual funds		2,350		56		41		2,365


Total securities available for sale	$	104,208	$	2,775	$	132	$	106,851


Securities held to maturity:
Agency mortgage-backed securities	$	16	$	0	$	0	$	16
Municipal obligations		0		0		0		0


Total securities held to maturity	$	16	$	0	$	0	$	16


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 September 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	$	2,823	$	2,857	$	0	$	0
Due after one year through five years		9,431		9,565		0		0
Due after five years through ten years		13,665		14,143
Due after ten years		43,180		44,454		0		0

		69,099		71,019		0		0

Mortgage-backed securities and CMO		32,759		33,467		16		16


	$	101,858	$	104,486	$	16	$	16

Information pertaining to investment securities available for sale with gross unrealized losses at September 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		9	$	8,027	$	49
Agency notes and bonds		1		1,071		4


Total less than twelve months		10		9,098		53


Continuous loss position more than twelve months:
Privately-issued CMO		1		286		38
Mutual fund		1		334		41


Total more than twelve months		2		620		79


Total securities available for sale		12	$	9,718	$	132

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 September 30, 2011, the 10 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 0.6% 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 September 30, 2011, the privately-issued CMO in a loss position had depreciated approximately 11.6% 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 September 30, 2011, the Company holds one privately-issued CMO with an amortized cost of $323,000 and a fair value of $286,000 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 September 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 September 30, 2011, additional deterioration in market and economic conditions may have an adverse impact on the credit quality in the future.

The Company realized gross gains on sales of available for sale U.S. government agency mortgage-backed securities of $16,000 and gross losses on sales of available for sale municipal securities of $24,000 for the nine months ended September 30, 2011. During the three months ended September 30, 2011, the Company realized gross gains on sales of available for sale U.S. government agency mortgage-backed securities of $16,000 and gross losses on available for sale municipal securities of $5,000. There were no sales of investment securities during the three and nine month periods ended September 30, 2010.