(3)	INVESTMENT SECURITIES

Debt and equity securities have been classified in the balance sheets according to management’s intent. Investment securities at December 31, 2012 and 2011 are summarized as follows:


(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2012:
Securities available for sale:
Agency mortgage-backed securities	$	22,762	$	456	$	12	$	23,206
Agency CMO		22,458		225		23		22,660
Other debt securities:
Agency notes and bonds		38,273		290		10		38,553
Municipal obligations		32,605		1,800		88		34,317

Subtotal – debt securities		116,098		2,771		133		118,736

Mutual funds		4,213		40		16		4,237

Total securities available for sale	$	120,311	$	2,811	$	149	$	122,973

Securities held to maturity:
Agency mortgage-backed securities	$	12	$	0	$	0	$	12

Total securities held to maturity	$	12	$	0	$	0	$	12

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

The amortized cost and fair value of debt securities as of December 31, 2012, by contractual maturity, are shown below. Expected maturities of mortgage-backed securities and CMO 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	$	506	$	507	$	0	$	0
Due after one year through five years		8,463		8,583		0		0
Due after five years through ten years		15,914		16,397		0		0
Due after ten years		45,995		47,383		0		0

		70,878		72,870		0		0
Mortgage-backed securities and CMO		45,220		45,866		12		12

	$	116,098	$	118,736	$	12	$	12

At December 31, 2012, certain investment securities were pledged under retail repurchase agreements and to secure FHLB advances. (See Notes 9 and 10)

Information pertaining to investment securities available for sale with gross unrealized losses at December 31, 2012, aggregated by investment category and the length of time that individual investment securities have been in a continuous loss position, follows:


	Number of Investment Positions		Fair Value		Gross Unrealized Losses
(Dollars in thousands)
Continuous loss position less than twelve months:
Agency mortgage-backed securities		2	$	3,070	$	12
Agency CMO		6		6,783		22
Agency notes and bonds		3		2,958		10
Municipal obligations		10		4,717		88

Total less than twelve months		21		17,528		132

Continuous loss position more than twelve months:
Agency CMO		1		886		1
Mutual fund		1		380		16

Total more than twelve months		2		1,266		17

Total securities available for sale		23	$	18,794	$	149

At December 31, 2012, 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, 2012, the 22 municipal obligations and 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 0.7% from the amortized cost basis. All of the U.S. government agency securities and municipal securities are issued by U.S. government agencies, government-sponsored enterprises, or municipal governments, and 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 U.S. government agency debt securities and municipal securities in an unrealized loss position until maturity, no declines are deemed to be other-than-temporary.

Based on an 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 on a privately-issued CMO. In December 2012, the Company sold all of its privately-issued CMO securities as discussed below.

While management does not anticipate further credit-related impairment losses at December 31, 2012, 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, 2012, the Company realized gross gains on sales of available for sale U.S. government agency mortgage-backed securities and agency bonds of $35,000 and $2,000, respectively, and gross losses on sales of available for sale privately-issued CMOs and agency CMOs of $18,000 and $8,000, respectively. 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 $16,000 and gross losses on sales of available for sale municipal obligations of $24,000.