(3)	INVESTMENT SECURITIES

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


(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2011:
Securities available for sale:
Agency mortgage-backed securities	$	11,689	$	542	$	11	$	12,220
Agency CMO		23,196		152		60		23,288
Privately-issued CMO		896		16		32		880
Other debt securities:
Agency notes and bonds		41,971		395		3		42,363
Municipal obligations		25,800		1,501		0		27,301

Subtotal – debt securities		103,552		2,606		106		106,052

Mutual funds		5,369		52		33		5,388

Total securities available for sale	$	108,921	$	2,658	$	139	$	111,440

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

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

The amortized cost and fair value of debt securities as of December 31, 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		Fair		Amortized		Fair
(In thousands)	Cost		Value		Cost		Value
Due in one year or less	$	2,299	$	2,313	$	0	$	0
Due after one year through five years		10,495		10,607		0		0
Due after five years through ten years		17,025		17,577		0		0
Due after ten years		37,952		39,167		0		0

		67,771		69,664		0		0
Mortgage-backed securities and CMO		35,781		36,388		16		16

	$	103,552	$	106,052	$	16	$	16

At December 31, 2011, certain investment securities were pledged under retail repurchase agreements and to secure Federal Home Loan Bank advances at December 31, 2011. (See Notes 9 and 10)

Information pertaining to investment securities available for sale with gross unrealized losses at December 31, 2011, aggregated by investment category and the length of time that individual investment securities have been in a continuous loss position, follows:


	Number of				Gross
	Investment		Fair		Unrealized
(Dollars in thousands)	Positions		Value		Losses
Continuous loss position less than twelve months:
Agency mortgage-backed securities		2	$	2,067	$	11
Agency CMO		9		7,402		60
Agency notes and bonds		2		2,061		3

Total less than twelve months		13		11,530		74

Continuous loss position more than twelve months:
Privately-issued CMO		1		237		32
Mutual fund		1		346		33

Total more than twelve months		2		583		65

Total securities available for sale		15	$	12,113	$	139

At December 31, 2011, the Company did not have any securities held to maturity with an unrealized loss. 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 December 31, 2011, the 13 U.S. government agency debt securities, including agency mortgage-backed securities, agency CMOs and agency notes and bonds in a loss position had depreciated approximately 0.6% from the amortized cost basis. All of the U.S. government agency securities are issued by U.S. government agencies or government-sponsored enterprises, or are secured by first mortgage loans. 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 U.S. government agency debt securities until maturity, or for the foreseeable future if classified as available for sale, no declines are deemed to be other-than-temporary.

At December 31, 2010, the privately-issued CMO in a loss position had depreciated approximately 11.8% from the amortized cost basis. The Company evaluates the existence of a potential credit loss component related to the decline in fair value of the privately-issued CMO portfolio each quarter using an independent third party analysis. At December 31, 2011, the privately-issued CMO in a loss position had an amortized cost of $269,000 and a fair value of $237,000, and had been downgraded to a substandard regulatory classification in 2009 due to a downgrade of the security’s credit quality rating by various rating agencies. Based on the independent third party analysis performed in December 2011, the Company recognized an other-than-temporary impairment loss of $36,000 representing the credit loss component of the unrealized loss. While management does not anticipate further credit-related impairment losses at December 31, 2011, additional deterioration in market and economic conditions may have an adverse impact on the credit quality in the future.

During the year ended December 31, 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 sales of available for sale municipal obligations of $24,000.