2. Investment Securities

Following is a comparison of the amortized cost and approximate fair value of investment securities at December 31, 2012 and December 31, 2011:

(In thousands)			Gross		Gross			Fair Value
December 31, 2012:	Amortized		Unrealized		Unrealized			(Carrying
Securities available for sale:	Cost		Gains		Losses			Amount)
U.S. Government agencies	$	23,433	$	933		0		$	24,366
U.S. Government collateralized
mortgage obligations		3,266		251		0			3,517
Residential mortgage obligations		0		0		0			0
Mutual Funds		4,000		0		(39	)		3,961
Total securities available for sale	$	30,699	$	1,184	$	(39	)	$	31,844
December 31, 2011:
Securities available for sale:
U.S. Government agencies	$	23,680	$	1,377	$	(7	)	$	25,050
U.S. Government collateralized
mortgage obligations		5,010		425		0			5,435
Residential mortgage obligations		10,238		0		(2,265	)		7,973
Mutual Funds		0		0		0			0
Total securities available for sale	$	38,928	$	1,802	$	(2,272	)	$	38,458

There were gross realized losses on available-for-sale securities totaling $195,000, but there were no gross gains during the year ended December 31, 2012. There were gross realized gains on sales of available-for-sale securities totaling $11,000 but no gross realized losses during the year ended December 31, 2011.

The amortized cost and fair value of securities available for sale at December 31, 2012, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because issuers have the right to call or prepay obligations with or without call or prepayment penalties. Contractual maturities on collateralized mortgage obligations cannot be anticipated due to allowed paydowns.

	December 31, 2012
	Amortized		Fair Value
(In thousands)	Cost		(Carrying Amount)
Due in one year or less	$	7,601	$	7,574
Due after one year through five years		9,237		9,299
Due after five years through ten years		1,127		1,210
Due after ten years		9,468		10,244
Collateralized mortgage obligations		3,266		3,517
	$	30,699	$	31,844

At December 31, 2012 and 2011, available-for-sale securities with an amortized cost of approximately $26.7 million and 28.7 million (fair value of $27.9 million and $30.5 million) were pledged as collateral for FHLB borrowings and public funds balances, respectively.

The Company had no held-to-maturity or trading securities at December 31, 2012 or 2011.

Management periodically evaluates each available-for-sale investment security in an unrealized loss position to determine if the impairment is temporary or other-than-temporary.

The following summarizes temporarily impaired investment securities at December 31, 2012 and 2011:

	Less than 12 Months					12 Months or More					Total
(In thousands)	Fair Value					Fair Value					Fair Value
December 31, 2012:	(Carrying		Unrealized			(Carrying		Unrealized			(Carrying		Unrealized
Securities available for sale:	Amount)		Losses			Amount)		Losses			Amount)		Losses
U.S. Government agencies	$	0	$	0		$	0	$	0		$	0	$	0
U.S. Government agency
collateral mortgage obligations		0		0			0		0			0		0
Residential mortgage obligations		0		0			0		0			0		0
Mutual Funds		3,961		(39	)							3,961		(39	)
Total impaired securities	$	3,961	$	(39	)	$	0	$	0		$	3,961	$	(39	)

December 31, 2011:
Securities available for sale:
U.S. Government agencies	$	2,143	$	(7	)	$	0	$	0		$	2,143	$	(7	)
U.S. Government agency
collateral mortgage obligations		0		0			0		0			0		0
Residential mortgage obligations		0		0			7,973		(2,265	)		7,973		(2,265	)
Total impaired securities	$	2,143	$	(7	)	$	7,973	$	(2,265	)	$	10,116	$	(2,272	)

Temporarily impaired securities at December 31, 2012 are comprised of one mutual fund, with an undefined maturity date. Temporarily impaired securities at December 31, 2011 are comprised of three (3) residential mortgage obligations, and two (2) U.S. government agency securities, with a total weighted average life of 2.9 years.

The Company evaluates investment securities for other-than-temporary impairment ("OTTI") at least quarterly, and more frequently when economic or market conditions warrant such an evaluation. The investment securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model. Investment securities of high credit quality are generally evaluated for OTTI under ASC Topic 320-10, "Investments – Debt and Equity Instruments." Certain purchased beneficial interests not of high credit quality, including non-agency mortgage-backed securities, asset-backed securities, and collateralized debt obligations, are evaluated using the model outlined in ASC Topic 325-40.

For the segment of the portfolio using ASC Topic 320-10 in determining OTTI, the Company considers many factors, including: (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, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to the Company at the time of the evaluation.

The second segment of the portfolio uses the OTTI guidance that is specific to purchased beneficial interests including non-agency collateralized mortgage obligations. Under this model, the Company compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows. An OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

Other-than-temporary-impairment occurs when the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss. If an entity intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the other-than-temporary-impairment shall be recognized in earnings equal to the entire difference between the investment's amortized cost basis and its fair value 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 recovery of its amortized cost basis less any current-period loss, the other-than-temporary-impairment shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total other-than-temporary-impairment related to the credit loss is recognized in earnings, and is determined based on the difference between the present value of cash flows expected to be collected and the current amortized cost of the security. The amount of the total other-than-temporary-impairment related to other factors shall be recognized in other comprehensive (loss) income, net of applicable taxes. The previous amortized cost basis less the other-than-temporary-impairment recognized in earnings shall become the new amortized cost basis of the investment.

During 2012, the Company recognized $284,000 of impairment loss on three non agency residential mortgage obligations which were determined to be other than temporarily impaired. These securities were subsequently sold during the fourth quarter of 2012 for a pre-tax loss of $184,000. At December 31, 2012, the Company held no securities which were been impaired more than 12 months.

At December 31, 2011, the Company had three non-agency residential mortgage obligations which have been impaired more than twelve months. The three non-agency residential mortgage obligations had a fair value of $8.0 million and unrealized losses of approximately $2.3 million at December 31, 2011. All three non-agency mortgage-backed securities were rated below investment grade quality at December 31, 2011. The Company evaluated these three non-agency residential mortgage obligations quarterly for OTTI by comparing the present value of expected cash flows to previous estimates to determine whether there had been adverse changes in cash flows during the year. The OTTI evaluation was conducted utilizing the services of a third party specialist and consultant in MBS and CMO products. The cash flow assumptions used in the evaluation included a number of factors including changes in delinquency rates, anticipated prepayment speeds, loan-to-value ratios, changes in agency ratings, and market prices. As a result of the impairment evaluation, the Company determined that there had been adverse changes in cash flows during the year for all three of the non-agency residential mortgage obligations reviewed, and concluded that these three non-agency residential mortgage obligations were other-than-temporarily impaired. At December 31, 2011, the three securities had other-than-temporary-impairment losses of $4.5 million, of which $2.2 million was recorded as a charge to earnings ($912,000 for the year ended December 31, 2011) and $2.3 million was recorded in other comprehensive loss. These three non-agency residential mortgage obligations were classified as available for sale at December 31, 2011 and were sold during the fourth quarter of 2012.

The following table details the three non-agency residential mortgage obligations with other-than-temporary-impairment, their credit rating at December 31, 2011, the related credit losses recognized in earnings for the year ended, and impairment losses included in other comprehensive loss.

December 31, 2011 (in 000's)	RALI 2006-QS1G A10			RALI 2006 QS8 A1			CWALT 2007-8CB A9
	Rated D			Rated D			Rated CCC			Total
Amortized cost – before OTTI	$	4,006		$	1,227		$	7,262		$	12,495

Credit loss		(831	)		(236	)		(1,190	)		(2,257	)
Other impairment (OCI)		(789	)		(264	)		(1,212	)		(2,265	)
Carrying amount – December 31, 2011	$	2,386		$	727		$	4,860		$	7,973

Total impairment - December 31, 2011	$	(1,620	)	$	(500	)	$	(2,402	)	$	(4,522	)

The total other comprehensive loss (OCI) balance of $2.3 million in the above table is included in unrealized losses of 12 months or more at December 31, 2011.