2.	Investment Securities

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


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

March 31, 2012
Securities available for sale:
Agency mortgage-backed securities	$	12,754	$	520	$	19	$	13,255
Agency CMO		23,449		179		33		23,595
Privately-issued CMO		816		19		50		785
Other debt securities:
Agency notes and bonds		42,006		231		148		42,089
Municipal obligations		24,771		1,262		2		26,031

Subtotal - debt securities		103,796		2,211		252		105,755


Mutual Funds		2,854		47		23		2,878


Total Securities available for sale	$	106,650	$	2,258	$	275	$	108,633


Securities held to maturity:
Agency mortgage-backed securities	$	15	$	0	$	0	$	15
Municipal obligations		0		0		0		0


Total securities held to maturity	$	15	$	0	$	0	$	15


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

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 CMOs are 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 March 31, 2012, 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	$	641	$	647	$	0	$	0
Due after one year through five years		8,497		8,575		0		0
Due after five years through ten years		15,599		15,966
Due after ten years		42,040		42,932		0		0

		66,777		68,120		0		0

Mortgage-backed securities and CMO		37,019		37,635		15		15


	$	103,796	$	105,755	$	15	$	15

Information pertaining to investment securities available for sale with gross unrealized losses at March 31, 2012, 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 notes and bonds		12	$	13,428	$	147
Agency CMO		9		8,613		33
Agency mortgage-backed securities		3		3,044		19
Municipal obligations		1		327		2


Total less than twelve months		25		25,412		201


Continuous loss position more than twelve months:
Privately-issued CMO		1		208		50
Agency notes and bonds		1		1,054		1
Mutual fund		1		361		23


Total more than twelve months		3		1,623		74


Total securities available for sale		28	$	27,035	$	275

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 recover in fair value.

At March 31, 2012, the 26 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 0.8% 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 March 31, 2012, the privately-issued CMO in a loss position had depreciated approximately 19.2% 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 March 31, 2012, the privately-issued CMO in a loss position had an amortized cost of $258,000 and a fair value of $208,000, and had been 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 March 2012, the Company did not recognize an other-than-temporary impairment loss during the quarter ended March 31, 2012. While management did not anticipate a credit-related impairment loss at March 31, 2012, any future deterioration in market and economic conditions may have an adverse impact on the credit quality in future periods.