2.	Investment Securities

Debt and equity securities have been classified in the consolidated balance sheets according to management’s intent. Investment securities at June 30, 2012 and December 31, 2011 are summarized as follows:


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(In thousands)	Cost		Gains		Losses		Value
June 30, 2012
Securities available for sale:
Agency mortgage-backed securities	$	18,784	$	496	$	17	$	19,263
Agency CMO		26,500		208		47		26,661
Privately-issued CMO		720		13		49		684
Other debt securities:
Agency notes and bonds		43,768		376		7		44,137
Municipal obligations		26,164		1,607		11		27,760

Subtotal—debt securities		115,936		2,700		131		118,505

Mutual funds		6,501		47		24		6,524

Total securities available for sale	$	122,437	$	2,747	$	155	$	125,029

Securities held to maturity:
Agency mortgage-backed securities	$	14	$	0	$	0	$	14

Total securities held to maturity	$	14	$	0	$	0	$	14

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 June 30, 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		Fair		Amortized		Fair
	Cost		Value		Cost		Value
(In thousands)
Due in one year or less	$	1,028	$	1,032	$	0	$	0
Due after one year through five years		7,490		7,644		0		0
Due after five years through ten years		17,022		17,455
Due after ten years		44,392		45,766		0		0

		69,932		71,897		0		0
Mortgage-backed securities and CMO		46,004		46,608		14		14

	$	115,936	$	118,505	$	14	$	14

Information pertaining to investment securities available for sale with gross unrealized losses at June 30, 2012, aggregated by investment category and the length of time that individual investment securities have been in a continuous position, follows:


	Number of				Gross
	Investment		Fair		Unrealized
	Positions		Value		Losses
(Dollars in thousands)
Continuous loss position less than twelve months:
Agency notes and bonds		5	$	4,747	$	6
Agency CMO		10		7,952		47
Agency mortgage-backed securities		3		3,099		17
Muncipal obligations		2		413		11

Total less than twelve months		20		16,211		81

Continuous loss position more than twelve months:
Privately-issued CMO		1		194		49
Agency notes and bonds		1		1,043		1
Mutual fund		1		363		24

Total more than twelve months		3		1,600		74

Total securities available for sale		23	$	17,811	$	155

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 June 30, 2012, the 21 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 0.5% 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 June 30, 2012, the privately-issued CMO in a loss position had depreciated approximately 20.1% 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 June 30, 2012, the privately-issued CMO in a loss position had an amortized cost of $243,000 and a fair value of $194,000, 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 June 2012, the Company did not recognize an other-than-temporary impairment loss during the quarter ended June 30, 2012. While management did not anticipate a credit-related impairment loss at June 30, 2012, any future deterioration in market and economic conditions may have an adverse impact on the credit quality in future periods.