Note 3.

Investment Securities

The carrying value and fair value of investment securities available-for-sale ("AFS") at March 31, 2012 are as follows:

			Included in Accumulated Other Comprehensive Income (AOCI)
					Gross unrealized losses
(In thousands)	Amortized cost		Gross unrealized gains		Non-OTTI in AOCI			Non-credit related OTTI in AOCI		Fair value
Mortgage-backed securities-residential	$	29,105	$	361	$	(14	)	$	-	$	29,452
U.S. government agencies		29,972		50		(163	)		-		29,859
Common stocks		33		14		-			-		47
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		240,870		3,888		(466	)		-		244,292
Non-agency		1,118		-		(76	)		-		1,042
Corporate bonds		7,299		33		(307	)		-		7,025
Municipal bonds		985		-		(28	)		-		957
Trust preferred securities		13,658		2,220		-			-		15,878
Other securities		6,818		459		(24	)		-		7,253
Total available for sale	$	329,858	$	7,025	$	(1,078	)	$	-	$	335,805

The carrying value and fair value of investment securities AFS at December 31, 2011 were as follows:

			Included in Accumulated Other Comprehensive Income (AOCI)
					Gross unrealized losses
(In thousands)	Amortized cost		Gross unrealized gains		Non-OTTI in AOCI			Non-credit related OTTI in AOCI		Fair value
Mortgage-backed securities-residential	$	16,763	$	309	$	(67	)	$	-	$	17,005
U.S. government agencies		35,966		122		(4	)		-		36,084
Common stocks		130		118		-			-		248
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		231,262		3,315		(543	)		-		234,034
Non-agency		4,739		94		(1	)		-		4,832
Corporate bonds		13,342		104		(471	)		-		12,975
Municipal bonds		985		-		(20	)		-		965
Trust preferred securities		13,665		2,280		-			-		15,945
Other securities		6,586		347		(15	)		-		6,918
Total available for sale	$	323,438	$	6,689	$	(1,121	)	$	-	$	329,006

The amortized cost and fair value of investment securities at March 31, 2012, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	As of March 31, 2012
(In thousands)	Amortized cost		Fair value
Within 1 year	$	26,072	$	25,911
After 1 but within 5 years		6,199		6,254
After 5 but within 10 years		2,985		2,749
After 10 years		16,658		18,805
Mortgage-backed securities-residential		29,105		29,452
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		240,870		244,292
Non-agency		1,118		1,042
Total available for sale debt securities		323,007		328,505
No contractual maturity		6,851		7,300
Total available for sale securities	$	329,858	$	335,805

Proceeds from the sales of AFS investments during the three months ended March 31, 2012 and 2011 were $11.8 million and $43.5 million, respectively. The following table summarizes gross realized gains and losses on the sale of securities recognized in earnings in the periods indicated:

	For the three months
	ended March 31,
(In thousands)	2012			2011
Gross realized gains	$	311		$	587
Gross realized losses		(172	)		(579	)
Net realized gains	$	139		$	8

The Company evaluates securities for OTTI at least on a quarterly basis. The Company assesses whether OTTI is present when the fair value of a security is less than its amortized cost. All investment securities are evaluated for OTTI under FASB ASC Topic 320, "Investments-Debt & Equity Securities" ("ASC Topic 320"). The non-agency collateralized mortgage obligations that are rated below AA are evaluated under FASB ASC Topic 320 Subtopic 40, "Beneficial Interests in Securitized Financial Assets" under FASB ASC Topic 325, "Investments-Other". In determining whether OTTI exists, management considers numerous factors, including but not limited to: (1) the length of time and the extent to which the fair value is less than the amortized cost, (2) the Company's intent to hold or sell the security, (3) the financial condition and results of the issuer including changes in capital, (4) the credit rating of the issuer, (5) analysts earnings estimate, (6) industry trends specific to the security, and (7) timing of debt maturity and status of debt payments.

Under ASC Topic 320, OTTI is considered to have occurred with respect to debt securities (1) if an entity intends to sell the security; (2) if it is more likely than not an entity will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of the expected cash flows is not sufficient to recover the entire amortized cost basis. In addition, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell or will more likely than not be required to sell the security. If an entity intends to sell the security or will be required to sell the security, the OTTI shall be recognized in earnings equal to the entire difference between the fair value and the amortized cost basis at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before the recovery of its amortized cost basis, the OTTI shall be separated into two amounts, the credit-related loss and the noncredit-related loss. The credit-related loss is based on the present value of the expected cash flows and is recognized in earnings. The noncredit-related loss is based on other factors such as illiquidity and is recognized in other comprehensive income. The Company did not record OTTI charges to earnings during the first quarter of 2012 and 2011.

The following table presents a roll-forward of the balance of credit-related impairment losses on debt securities held at March 31, 2012 and 2011 for which a portion of OTTI was recognized in other comprehensive income:

(In thousands)	2012		2011
Balance at January 1,	$	173	$	924
Credit-related impairment loss on debt securities for which an other-than-temporary impairment was not previously recognized		-		-
Reductions for securities sold during the period (realized)		-		-
Reductions for securities for which the amount previously recognized in other comprehensive income was recognized in earnings because the Company intends to sell the security		-		-
Balance at March 31,	$	173	$	924

The tables below indicate the length of time individual AFS securities have been in a continuous unrealized loss position at March 31, 2012 and December 31, 2011:

March 31, 2012	Less than 12 months					12 months or longer					Total
(In thousands)	Fair value		Gross unrealized losses			Fair value		Gross unrealized losses			Fair value		Gross unrealized losses
Mortgage-backed securities-residential	$	8,209	$	(14	)	$	-	$	-		$	8,209	$	(14	)
U.S. government agencies		18,816		(163	)		-		-			18,816		(163	)
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		52,204		(420	)		6,219		(46	)		58,423		(466	)
Non-agency		1,042		(76	)		-		-			1,042		(76	)
Corporate bonds		1,918		(82	)		2,773		(225	)		4,691		(307	)
Municipal bonds		957		(28	)		-		-			957		(28	)
Other securities		825		(24	)		-		-			825		(24	)
Total available-for-sale	$	83,971	$	(807	)	$	8,992	$	(271	)	$	92,963	$	(1,078	)

December 31, 2011	Less than 12 months					12 months or longer					Total
(In thousands)	Fair value		Gross unrealized losses			Fair value		Gross unrealized losses			Fair value		Gross unrealized losses
Mortgage-backed securities-residential	$	9,588	$	(67	)	$	-	$	-		$	9,588	$	(67	)
U.S. government agencies		2,999		(1	)		3,996		(3	)		6,995		(4	)
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		35,511		(374	)		10,149		(169	)		45,660		(543	)
Non-agency		-		-			669		(1	)		669		(1	)
Corporate bonds		3,804		(197	)		3,751		(274	)		7,555		(471	)
Municipal bonds		965		(20	)		-		-			965		(20	)
Other securities		502		(15	)		-		-			502		(15	)
Total available-for-sale	$	53,369	$	(674	)		18,565	$	(447	)	$	71,934		(1,121	)

The AFS portfolio had gross unrealized losses of $1.1 million at March 31, 2012 and December 31, 2011. In determining the Company's intent not to sell and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, management considers the following factors: current liquidity and availability of other non-pledged assets that permits the investment to be held for an extended period of time but not necessarily until maturity, capital planning, and any specific investment committee goals or guidelines related to the disposition of specific investments.

Common stocks: As of March 31, 2012, the Company had two common stocks of financial institutions with a total fair value of $47,000 and an unrealized gain of $14,000. During the first quarter of 2012 the Company sold one common stock investment and recorded a gain of $112,000.

For all debt security types discussed below the fair value is based on prices provided by brokers and safekeeping custodians with the exception of trust preferred securities which are described below.

Mortgage-backed securities issued by U.S. government agencies and U.S. government sponsored enterprises: As of March 31, 2012, the Company had two mortgage-backed securities with a fair value of $8.2 million and gross unrealized losses of $14,000, or 0.2% of their aggregate cost. The two mortgage-backed securities had been in an unrealized loss position for six months. The unrealized loss is attributable to a combination of factors, including relative changes in interest rates since the time of purchase. The contractual cash flows for these securities are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. Based on its assessment of these factors, management believes that the unrealized losses on these debt securities are a function of changes in investment spreads and interest rate movements and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities. The Company does not intend to sell these securities before recovery of their cost basis and will not more likely than not be required to sell these securities before recovery of their cost basis. Therefore, management has determined that these securities are not other-than-temporarily impaired at March 31, 2012.

U.S. government-sponsored agencies ("U.S. Agencies"): As of March 31, 2012, the Company had five U.S. Agencies with a fair value of $18.8 million and gross unrealized losses of $163,000, or 0.9%, of their aggregate cost. All of these U.S. Agencies have been in an unrealized loss position for less than one month. Management believes that the unrealized losses on these debt securities are a function of changes in investment spreads. Management expects to recover the entire amortized cost basis of these securities. The Company does not intend to sell these securities before recovery of their cost basis and will not more likely than not be required to sell these securities before recovery of their cost basis. Therefore, management has determined that these securities are not other-than-temporarily impaired at March 31, 2012.

U.S. government issued or sponsored collateralized mortgage obligations ("Agency CMOs"): As of March 31, 2012, the Company had 15 Agency CMOs with a fair value of $58.4 million and gross unrealized losses of $466,000, or 0.8% of their aggregate cost. Thirteen of the Agency CMOs have been in an unrealized loss position for less than twelve months. The two Agency CMOs that have been in an unrealized loss position for more than twelve months have a fair market value of $6.2 million and an unrealized loss of $46,000 at March 31, 2012. The unrealized loss is attributable to a combination of factors, including relative changes in interest rates since the time of purchase. The contractual cash flows for these securities are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. Based on its assessment of these factors, management believes that the unrealized losses on these debt securities are a function of changes in investment spreads and interest rate movements and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities. The Company does not intend to sell these securities before recovery of their cost basis and will not more likely than not be required to sell these securities before recovery of their cost basis. Therefore, management has determined that these securities are not other-than-temporarily impaired at March 31, 2012.

Non-agency collateralized mortgage obligations ("Non-agency CMOs"): As of March 31, 2012, the Company had one non-agency CMO with a fair value of $1.0 million and gross unrealized losses of $76,000, or less than 6.8% of the aggregate cost. The non-agency CMO bond has been in an unrealized loss position for less than one month. The Company evaluated the impairment to determine if it could expect to recover the entire amortized cost basis of the non-agency CMO bond by considering numerous factors including credit default rates, conditional prepayment rates, current and expected loss severities, delinquency rates, and geographic concentrations. The bond was recently downgraded to CCC. The Company does not intend to sell the non-agency CMO and it is not more likely than not that the Company will be required to sell the investment before recovery of the amortized cost basis. Therefore, the Company does not consider the bond to be other-than-temporarily impaired as of March 31, 2012.

Corporate bonds: As of March 31, 2012, the Company had five corporate bonds with a fair value of $4.7 million and gross unrealized losses of $307,000, or 6.1% of their aggregate cost. Two bonds have been in an unrealized loss position for six months or less and three bonds have been in an unrealized loss position for more than twelve months. All five bonds are above investment grade. The Company's unrealized losses in investments in corporate bonds represent interest rate risk and not credit risk of the underlying issuers. As previously mentioned management also considered (1) the length of time and the extent to which the fair value is less than the amortized cost, (2) the Company's intent to hold or sell the security, (3) the financial condition and results of the issuer including changes in capital, (4) the credit rating of the issuer, (5) analysts earnings estimate, (6) industry trends specific to the security, and (7) timing of debt maturity and status of debt payments. Management utilized discounted cash flow analysis based upon the credit ratings of the securities, liquidity risk premiums, and the recent corporate spreads for similar securities to arrive at the credit risk component as required under ASC Topic 320 to determine the credit risk component of the corporate bonds. Based on these analyses, there was no credit-related loss on the five bonds. Because the Company does not intend to sell the corporate bonds and it is not more likely than not that the Company will be required to sell the bonds before recovery of their amortized cost basis, which may be maturity, the Company does not consider the five bonds to be other-than-temporarily impaired at March 31, 2012.

Municipal bonds: As of March 31, 2012, the Company had one municipal bond issued by the City of Chicago with a fair value of $957,000 with a gross unrealized loss of $28,000, or 2.8% of the aggregate cost. The municipal bond has been in an unrealized loss position for less than six months and is investment grade. The unrealized loss is attributable to a combination of factors, including Chicago's financial situation. During the fourth quarter of 2011, the three major ratings agencies gave Chicago's credit a stable outlook rating. Because the Company does not intend to sell the bonds and it is not more likely than not that the Company will be required to sell the bond before recovery of its amortized cost basis, which may be maturity, the Company does not consider the bond to be other-than-temporarily impaired at March 31, 2012.

Trust preferred securities: At March 31, 2012, the Company had five trust preferred securities issued by four individual name companies (reflecting, where applicable the impact of mergers and acquisitions of issuers subsequent to original purchase) in the financial services/banking industry with a total fair value of $15.9 million and an unrealized gain of $2.2 million. The valuations of trust preferred securities were based upon the fair market values of active trades for one of the securities and ASC Topic 320 using cash flow analysis for the remaining four securities. Contractual cash flows and a market rate of return were used to derive fair value for each of these securities. Factors that affected the market rate of return included (1) any uncertainty about the amount and timing of the cash flows, (2) the credit risk, (3) liquidity of the instrument, and (4) observable yields from trading data and bid/ask indications. Credit risk spreads and liquidity premiums were analyzed to derive the appropriate discount rate.

Other securities: As of March 31, 2012, the Company had seven investments in real estate funds. As of March 31, 2012, two of the private equity real estate funds had a fair value of $825,000 and an unrealized loss of $24,000 or 2.8% of the aggregate cost. Both funds have been in an unrealized loss position for less than twelve months. OTTI charges were recorded in a prior period on each of these bonds. After reviewing the fund's financials, asset values, and its near-term projections, management concluded that there was no additional impairment in the first quarter of 2012.

The Company will continue to monitor these investments to determine if the discounted cash flow analysis, continued negative trends, market valuations or credit defaults result in impairment that is other than temporary.