6. Investment Securities

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

Investment securities available for sale (AFS):


	June 30, 2013
	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
US Agency	$	8,049	$	39	$	(164	)	$	7,924
US Agency mortgage-backed securities		127,018		3,881		(928	)		129,971
Corporate bonds		11,991		30		(260	)		11,761
Total	$	147,058	$	3,950	$	(1,352	)	$	149,656

Investment securities held to maturity (HTM):


	June 30, 2013
	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
US Agency mortgage-backed securities	$	13,621	$	325	$	(330	)	$	13,616
Taxable municipal		1,012		-		(61	)		951
Corporate bonds and other securities		3,995		-		(83	)		3,912
Total	$	18,628	$	325	$	(474	)	$	18,479

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 June 30, 2013, 89.7% of the portfolio was rated "AAA" as compared to 92.2% at December 31, 2012. 1.2% of the portfolio was either rated below "A" or unrated at June 30, 2013. The Company has no exposure to subprime mortgage loans in the investment portfolio. At June 30, 2013, the Company's consolidated investment securities portfolio had a modified duration of approximately 2.89 years.

Total proceeds from the sale of AFS securities for the first six months of 2013 were $1.2 million resulting in $71,000 of gross investment security gains. There were no sales of investment securities in the three months ended June 30, 2013. Total proceeds from the sale of AFS securities for the first six months of 2012 were $4.2 million resulting in $59,000 of gross investment security gains and $47,000 of gross investment security losses. All of the investment security sales activity for 2012 occurred in the second quarter.

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 $95,910,000 at June 30, 2013 and $94,206,000 at December 31, 2012.

The following tables present information concerning investments with unrealized losses as of June 30, 2013 and December 31, 2012 (in thousands):

Investment securities available for sale:


	June 30, 2013
	Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
US Agency	$	5,885	$	(164	)	$	-	$	-		$	5,885	$	(164	)
US Agency mortgage-backed securities		35,465		(928	)		-		-			35,465		(928	)
Corporate bonds		6,796		(195	)		2,935		(65	)		9,731		(260	)
Total	$	48,146	$	(1,287	)	$	2,935	$	(65	)	$	51,081	$	(1,352	)

Investment securities held to maturity:


	June 30, 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	$	7,594	$	(330	)	$	-	$	-		$	7,594	$	(330	)
Taxable municipal		951		(61	)		-		-			951		(61	)
Corporate bonds and other securities		919		(76	)		2,993		(7	)		3,912		(83	)
Total	$	9,464	$	(467	)	$	2,993	$	(7	)	$	12,457	$	(474	)

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 53 positions that are considered temporarily impaired at June 30, 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 June 30, 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:


	June 30, 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	$	7,049	$	1,159	$	7,993	$	16,201
After 5 years but within 10 years		1,000		14,051		3,998		19,049
After 10 years but within 15 years		-		60,386		-		60,386
Over 15 years		-		51,422		-		51,422
Total	$	8,049	$	127,018	$	11,991	$	147,058


	June 30, 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	$	6,970	$	1,235	$	7,900	$	16,105
After 5 years but within 10 years		954		14,501		3,861		19,316
After 10 years but within 15 years		-		61,233		-		61,233
Over 15 years		-		53,002		-		53,002
Total	$	7,924	$	129,971	$	11,761	$	149,656

Investment securities held to maturity:


	June 30, 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		1,777		-		1,777
After 10 years but within 15 years		-		1,012		1,012
Over 15 years		11,844		995		12,839
Total	$	13,621	$	5,007	$	18,628


	June 30, 2013
Fair Value	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		-		993		993
After 5 years but within 10 years		1,662		-		1,662
After 10 years but within 15 years		-		950		950
Over 15 years		11,954		920		12,874
Total	$	13,616	$	4,863	$	18,479