6. Investment Securities

The cost basis and fair values of investment securities are summarized as follows (in thousands):

Investment securities available for sale (AFS):


	March 31, 2013
	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
US Agency	$	6,850	$	61	$	(8	)	$	6,903
US Agency mortgage-backed securities		124,928		5,703		(18	)		130,613
Corporate bonds		8,993		52		(72	)		8,973
Total	$	140,771	$	5,816	$	(98	)	$	146,489

Investment securities held to maturity (HTM):


	March 31, 2013
	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
US Agency mortgage-backed securities	$	11,370	$	498	$	(24	)	$	11,844
Taxable municipal		1,012		5		-			1,017
Corporate bonds and other securities		3,995		-		(9	)		3,986
Total	$	16,377	$	503	$	(33	)	$	16,847

Investment securities available for sale (AFS):


	December 31, 2012
	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
US Agency	$	5,848	$	70	$	(7	)	$	5,911
US Agency mortgage-backed securities		131,425		6,320		(10	)		137,735
Corporate bonds		7,992		3		(103	)		7,892
Total	$	145,265	$	6,393	$	(120	)	$	151,538

Investment securities held to maturity (HTM):


	December 31, 2012
	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
US 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 Investor's Service or Standard & Poor's rating of "A." At March 31, 2013, 91.1% of the portfolio was rated "AAA" as compared to 92.2% at December 31, 2012. 1.3% of the portfolio was either rated below "A" or unrated at March 31, 2013. The Company has no exposure to subprime mortgage loans in the investment portfolio. At March 31, 2013, the Company's consolidated investment securities portfolio had a modified duration of approximately 2.15 years. Total proceeds from the sale of AFS securities were $1.2 million for the first three months of 2013. The Company had $71,000 of gross investment security gains in the first quarter of 2013. There were no sales of AFS securities in the first quarter of 2012.

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 $89,123,000 at March 31, 2013 and $94,206,000 at December 31, 2012.

The following tables present information concerning investments with unrealized losses as of March 31, 2013 and December 31, 2012 (in thousands):

Investment securities available for sale:


	March 31, 2013
	Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
US Agency	$	992	$	(8	)	$	-	$	-		$	992	$	(8	)
US Agency mortgage-backed securities		7,254		(18	)		-		-			7,254		(18	)
Corporate bonds		4,941		(52	)		980		(20	)		5,921		(72	)
Total	$	13,187	$	(78	)	$	980	$	(20	)	$	14,167	$	(98	)

Investment securities held to maturity:


	March 31, 2013
	Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
US Agency mortgage-backed securities	$	2,789	$	(24	)	$	-	$	-		$	2,789	$	(24	)
Corporate bonds and other securities		1,987		(8	)		1,999		(1	)		3,986		(9	)
Total	$	4,776	$	(32	)	$	1,999	$	(1	)	$	6,775	$	(33	)

Investment securities available for sale:


	December 31, 2012
	Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
US Agency	$	993	$	(7	)	$	-	$	-		$	993	$	(7	)
US 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:


	December 31, 2012
	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 18 positions that are considered temporarily impaired at March 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.

Contractual maturities of securities at March 31, 2013 are shown below (in thousands). Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without prepayment penalties.

Investment securities available for sale:


	March 31, 2013
Cost Basis	US Agency		US Agency Mortgage-Backed Securities		Corporate Bonds		Total Investment Securities Available For Sale
After 1 year but within 5 years	$	5,850	$	-	$	7,993	$	13,843
After 5 years but within 10 years		1,000		13,661		1,000		15,661
After 10 years but within 15 years		-		56,008		-		56,008
Over 15 years		-		55,259		-		55,259
Total	$	6,850	$	124,928	$	8,993	$	140,771


	March 31, 2013
Fair Value	US Agency		US Agency Mortgage-Backed Securities		Corporate Bonds		Total Investment Securities Available For Sale
After 1 year but within 5 years	$	5,911	$	-	$	7,970	$	13,881
After 5 years but within 10 years		992		14,424		1,003		16,419
After 10 years but within 15 years		-		58,367		-		58,367
Over 15 years		-		57,822		-		57,822
Total	$	6,903	$	130,613	$	8,973	$	146,489

Investment securities held to maturity:


	March 31, 2013
Cost Basis	US Agency Mortgage-Backed Securities		Corporate Bonds and Other Securities		Total Investment Securities Held To Maturity
Within 1 year	$	-	$	2,000	$	2,000
After 1 year but within 5 years		-		1,000		1,000
After 5 years but within 10 years		761		-		761
After 10 years but within 15 years		-		1,012		1,012
Over 15 years		10,609		995		11,604
Total	$	11,370	$	5,007	$	16,377


	March 31, 2013
Fair Value	US Agency Mortgage-Backed Securities		Corporate Bonds and Other Securities		Total Investment Securities Held To Maturity
Within 1 year	$	-	$	1,999	$	1,999
After 1 year but within 5 years		-		995		995
After 5 years but within 10 years		751		-		751
After 10 years but within 15 years		-		1,017		1,017
Over 15 years		11,093		992		12,085
Total	$	11,844	$	5,003	$	16,847