Note 3. Investment Securities

The carrying value and fair value of investment securities available-for-sale ("AFS") at March 31, 2013 and December 31, 2012 are as follows:

As of March 31, 2013			Included in Accumulated Other Comprehensive Income (AOCI)
					Gross unrealized losses
(In thousands)	Amortized cost		Gross unrealized gains		Non-OTTI in AOCL			Non-credit related OTTI in AOCL		Fair value
U.S. government agencies	$	69,358	$	92	$	(77	)	$	-	$	69,373
Mortgage-backed securities-residential		31,653		573		(61	)		-		32,165
Collateralized mortgage obligations:											-
Issued or guaranteed by U.S. government agencies		196,521		4,844		(378	)		-		200,987
Non-agency		874		30		-			-		904
Corporate bonds		7,868		70		(49	)		-		7,889
Municipal bonds		5,640		1		(47	)		-		5,594
Other securities		3,673		695		(143	)		-		4,225
Common stocks		33		14		-			-		47
Total available for sale	$	315,620	$	6,319	$	(755	)	$	-	$	321,184

			Included in Accumulated Other Comprehensive Income (AOCI)
					Gross unrealized losses
(In thousands)	Amortized cost		Gross unrealized gains		Non-OTTI in AOCL			Non-credit related OTTI in AOCL		Fair value
U.S. government agencies	$	66,371	$	151	$	(78	)	$	-	$	66,444
Mortgage-backed securities-residential		30,038		518		(47	)		-		30,509
Collateralized mortgage obligations:									-		-
Issued or guaranteed by U.S. government agencies		229,556		5,031		(611	)				233,976
Non-agency		1,007		4		-			-		1,011
Corporate bonds		7,477		32		(72	)		-		7,437
Municipal bonds		5,645		-		(30	)		-		5,615
Other securities		3,752		520		(108	)		-		4,164
Common stocks		33		14		-			-		47
Total available for sale	$	343,879	$	6,270	$	(946	)	$	-	$	349,203

The amortized cost and fair value of investment securities at March 31, 2013, 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, 2013
(In thousands)	Amortized cost		Fair value
Within 1 year	$	19,905	$	19,975
After 1 but within 5 years		4,682		4,724
After 5 but within 10 years		31,841		31,708
After 10 years		26,438		26,449
Mortgage-backed securities-residential		31,653		32,165
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		196,521		200,987
Non-agency		874		904
Total available for sale debt securities		311,914		316,912
No contractual maturity		3,706		4,272
Total available for sale securities	$	315,620	$	321,184

Proceeds from the sales of AFS investments during the three months ended March 31, 2013 and 2012 were $12.1 million and $11.8 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)	2013			2012
Gross realized gains	$	138		$	311
Gross realized losses		(93	)		(172	)
Net realized gains	$	45		$	139

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 quarters of 2013 and 2012.

The following table presents a roll-forward of the balance of credit-related impairment losses on debt securities held at March 31, 2013 and 2012 for which a portion of OTTI was recognized in other comprehensive income:

(In thousands)	2013		2012
Balance at January 1,	$	173	$	173
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	$	173

The tables below indicate the length of time individual AFS securities have been in a continuous unrealized loss position at March 31, 2013 and December 31, 2012:

March 31, 2013	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
U.S. government agencies	$	24,560	$	(77	)	$	-	$	-		$	24,560	$	(77	)
Mortgage-backed securities-residential		10,664		(61	)		-		-			10,664		(61	)
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		43,889		(372	)		2,885		(6	)		46,774		(378	)
Corporate bonds		995		(5	)		956		(44	)		1,951		(49	)
Municipal bonds		5,458		(47	)		-		-			5,458		(47	)
Other securities		276		(44	)		226		(99	)		502		(143	)
Total available-for-sale	$	85,842	$	(606	)	$	4,067	$	(149	)	$	89,909	$	(755	)


December 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
U.S. government agencies	$	23,818	$	(78	)	$	-	$	-		$	23,818	$	(78	)
Mortgage-backed securities-residential		7,280		(47	)		-		-			7,280		(47	)
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		44,937		(592	)		3,975		(19	)		48,912		(611	)
Corporate bonds		2,165		(13	)		941		(59	)		3,106		(72	)
Municipal bonds		4,597		(21	)		882		(9	)		5,479		(30	)
Other securities		289		(38	)		255		(70	)		544		(108	)
Total available-for-sale	$	83,086	$	(789	)	$	6,053	$	(157	)	$	89,139	$	(946	)

The AFS portfolio had gross unrealized losses of $755,000 and $946,000 at March 31, 2013 and December 31, 2012, respectively. 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, 2013, 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.

U.S. government-sponsored agencies ("U.S. Agencies"): As of March 31, 2013, the Company had eight U.S. Agencies with a fair value of $24.6 million and gross unrealized losses of $77,000. All of these U.S. Agencies have been in an unrealized loss position for twelve months or less. 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, 2013.

Mortgage-backed securities issued by U.S. government agencies and U.S. government sponsored enterprises: As of March 31, 2013, the Company had three mortgage-backed securities with a fair value of $10.7 million and gross unrealized losses of $61,000. The three mortgage-backed securities had been in an unrealized loss position for twelve months or less. 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, 2013.

U.S. government issued or sponsored collateralized mortgage obligations ("Agency CMOs"): As of March 31, 2013, the Company had seventeen Agency CMOs with a fair value of $46.8 million and gross unrealized losses of $378,000. Sixteen of the Agency CMOs have been in an unrealized loss position for twelve months or less. The one Agency CMO that has been in an unrealized loss position for more than twelve months has a fair market value of $2.9 million and an unrealized loss of $6,000 at March 31, 2013. 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, 2013.

Non-agency collateralized mortgage obligations ("Non-agency CMOs"): As of March 31, 2013, the Company had one non-agency CMO with a fair value of $904,000 and gross unrealized gains of $30,000. The non-agency CMO is rated CCC.

Corporate bonds: As of March 31, 2013, the Company had two corporate bonds with a fair value of $2.0 million and gross unrealized losses of $49,000. One bond has been in an unrealized loss position for twelve months or less and one bond has been in an unrealized loss position for more than twelve months. The two 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 two 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 two bonds to be other-than-temporarily impaired at March 31, 2013.

Municipal bonds: As of March 31, 2013, the Company had six municipal bond with a fair value $5.5 million and an unrealized loss of $47,000. These six municipal bonds have been in an unrealized loss position for twelve months or less. 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 bonds to be other-than-temporarily impaired at March 31, 2013.

Other securities: As of March 31, 2013, the Company had seven investments in private equity funds which were predominantly invested in real estate. In determining whether or not OTTI exists, the Company reviews the funds' financials, asset values, and its near-term projections. At March 31, 2013, two of the private equity funds had a combined fair value of $502,000 and an unrealized loss of $143,000. OTTI charges were recorded in a prior period on these two funds. Management concluded that there was no additional impairment on these two funds as of March 31, 2013.

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.