INVESTMENT SECURITIES

The amortized cost of investment securities and their fair values are summarized as follows:



	Par Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
At December 31, 2012:
Available-for-sale investment securities:
U.S. Treasury securities	$	17,000	$	16,964	$	405	$	(6	)	$	17,363
Government sponsored entity (GSE) securities	45,000		45,628		848		(8		)	46,468
Collateralized mortgage obligations	67,902		63,367		3,735		(36		)	67,066
Commercial mortgage-backed securities	44,267		45,178		1,251		—			46,429
GSE residential mortgage-backed securities	2,224		2,400		—		(32		)	2,368
Asset backed securities	4,182		3,876		177		—			4,053
Pooled trust preferred securities	24,508		22,409		—		(2,867		)	19,542
GSE preferred stock	200		—		1		—			1
Total available-for-sale investment securities	$	205,283	$	199,822	$	6,417	$	(2,949	)	$	203,290

Held-to-maturity investment securities:
Asset backed securities	$	6,446	$	6,578	$	219	$	—		$	6,797
Municipal securities	8,880		8,880		45		—			8,925
Total held-to-maturity investment securities	$	15,326	$	15,458	$	264	$	—		$	15,722



	Par Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
At December 31, 2011:
Available-for-sale investment securities:
U.S. Treasury securities	$	15,000	$	14,967	$	447	$	—		$	15,414
Government sponsored entity (GSE) securities	46,800		46,967		1,415		—			48,382
Corporate bonds	5,420		5,022		9		(4		)	5,027
Collateralized mortgage obligations	79,006		71,073		1,178		(1,367		)	70,884
Commercial mortgage-backed securities	72,885		74,664		1,520		(66		)	76,118
Pooled trust preferred securities	27,398		24,804		—		(6,249		)	18,555
GSE preferred stock	200		—		1		—			1
Total available-for-sale investment securities	$	246,709	$	237,497	$	4,570	$	(7,686	)	$	234,381

Held-to-maturity investment securities:
Asset backed securities	$	8,201	$	8,461	$	285	$	—		$	8,746
Municipal securities	7,910		7,910		47		—			7,957
Total held-to-maturity investment securities	$	16,111	$	16,371	$	332	$	—		$	16,703

The Company’s investments in collateralized mortgage obligations consisted of $4.0 million and $5.2 million, respectively, of GSE issued investment securities and $63.1 million and $65.7 million, respectively, of non-agency (private issued) residential investment securities at December 31, 2012 and 2011.

Investment securities with unrealized losses at December 31, 2012 and 2011, aggregated by investment category and length of time that individual investment securities have been in a continuous unrealized loss position, are presented in the following tables:



	December 31, 2012
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in thousands)
U.S. Treasury securities	$	4,984	$	(6	)	$	—	$	—		$	4,984	$	(6	)
GSE securities	2,468		(8		)	—		—			2,468		(8		)
Collateralized mortgage obligations	6,705		(36		)	—		—			6,705		(36		)
GSE residential mortgage-backed securities	2,368		(32		)	—		—			2,368		(32		)
Pooled trust preferred securities	—		—			19,542		(2,867		)	19,542		(2,867		)
	$	16,525	$	(82	)	$	19,542	$	(2,867	)	$	36,067	$	(2,949	)



	December 31, 2011
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in thousands)
Corporate bonds	$	3,969	$	(4	)	$	—	$	—		$	3,969	$	(4	)
Collateralized mortgage obligations	34,504		(983		)	3,428		(384		)	37,932		(1,367		)
Commercial mortgage-backed securities	89		(1		)	4,154		(65		)	4,243		(66		)
Pooled trust preferred securities	—		—			18,555		(6,249		)	18,555		(6,249		)
	$	38,562	$	(988	)	$	26,137	$	(6,698	)	$	64,699	$	(7,686	)

Management evaluates all investment securities on a quarterly basis, and more frequently when economic conditions warrant additional evaluations, for determining if an OTTI exists pursuant to guidelines established in ASC 320-10, Investments – Debt and Equity Securities. Current accounting guidance generally provides that if a marketable security is in an unrealized loss position, whether due to general market conditions or industry or issuer-specific factors, the holder of the investment securities must assess whether the impairment is other-than-temporary.

In management’s belief, the decline in value of the Company’s investment in collateralized mortgage obligations is minimal and primarily attributable to changes in market interest rates and macroeconomic conditions affecting liquidity and not necessarily the expected cash flows of the individual investment securities. The fair value of these investment securities is expected to recover as macroeconomic conditions improve, interest rates rise, and the investment securities approach their maturity date.

At December 31, 2012, the Company’s pooled trust preferred investment securities consisted of Super Senior securities backed by senior securities issued mainly by bank and thrift holding companies. Due to the structure of the securities, as deferrals and defaults on the underlying collateral increase, cash flows are increasingly diverted from mezzanine and subordinate tranches to pay down principal on the Super Senior tranches. In management’s belief, the decline in value is primarily attributable to macroeconomic conditions affecting the liquidity of these securities and not necessarily the expected cash flows of the individual securities. The fair value of these securities is expected to recover as interest rates rise and as the securities approach their maturity date.

Unrealized losses on collateralized mortgage obligations and pooled trust preferred investment securities have not been recognized in income because management does not have the intent to sell these securities and has the ability to hold these securities for a period of time sufficient to allow for any anticipated recovery in fair value, which may be at maturity. The Company may, from time to time, dispose of an impaired security in response to asset/liability management decisions, regulatory considerations, market movements, business plan changes, or if the net proceeds could be reinvested at a rate of return that is expected to recover the loss within a reasonable period of time. The Company concluded that the unrealized losses that existed at December 31, 2012 and 2011 did not constitute other-than-temporary impairments.

The amortized cost and fair value of investment securities at December 31, 2012, by contractual maturity, are shown in the following tables. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Investment securities not due at a single maturity date are shown separately.



	Available-for-Sale
	Amortized Cost		Fair Value
	(Dollars in thousands)
U.S. Treasury securities:
Due after one year through five years	$	16,964	$	17,363
GSE securities:
Due in one year or less	6,998		7,103
Due after one year through five years	32,141		32,868
Due after five years through ten years	6,489		6,497
Collateralized mortgage obligations:
Due after five years through ten years	6,172		6,468
Due after ten years	57,195		60,598
Commercial mortgage-backed securities:
Due after ten years	45,178		46,429
GSE residential mortgage-backed securities:
Due after ten years	2,400		2,368
Asset backed securities:
Due after ten years	3,876		4,053
Pooled trust preferred securities:
Due after ten years	22,409		19,542
GSE preferred stock	—		1
	$	199,822	$	203,290



	Held-to-Maturity
	Amortized Cost		Fair Value
	(Dollars in thousands)
Asset backed securities:
Due after one year through five years	$	6,578	$	6,797
Municipal securities:
Due in one year or less	3,000		3,009
Due after one year through five years	5,880		5,916
	$	15,458	$	15,722

The following table provides information as to the amount of gross gains and losses realized through the sales of investment securities available-for-sale:



	2012			2011		2010
	(Dollars in thousands)
Available-for-sale securities:
Gross realized gains	$	1,644		$	1,715	$	689
Gross realized losses	(135		)	—		—
Net realized gains	$	1,509		$	1,715	$	689

The carrying value of investment securities pledged as collateral to secure public deposits, repurchase sweep agreements (Repo Sweeps), and for other purposes was $29.1 million and $54.4 million at December 31, 2012 and 2011, respectively.

At December 31, 2012, other than the U.S. Government, its agencies, and GSEs, the Company had holdings of investment securities from two separate issuers in an amount greater than 10% of shareholders’ equity as identified in the table below:



Issuer	Book Value		Market Value		# of Underlying Pools
	(Dollars in thousands)
IMPAC CMB Trust	$	10,295	$	11,608	3
JP Morgan Chase Commercial Mortgage Securities Corp	18,077		18,619		5

There are three different pools of collateral backing three collateralized mortgage obligation securities issued by IMPAC CMB Trust. These pools consist primarily of floating-rate, first lien mortgages originated prior to 2005 on single-family properties in multiple states. There are five different collateral pools of geographically diversified commercial real estate loans backing five commercial mortgage-backed securities issued by JP Morgan Chase Commercial Mortgage Securities Corp. Four of the five collateral pools consist of commercial real estate loans originated prior to 2006 and one collateral pool consists of loans originated in 2010.