4. Investment Securities

The carrying values and approximate fair values of investment securities at the periods indicated are presented below:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
		(In Thousands)
September 30, 2012
Securities available for sale
U.S. Treasury and government sponsored entities	$	99,505	$	467	$	-	$	99,972
Municipal securities		18,199		691		-		18,890
U.S. Agency mortgage-backed securities		41		2		-		43
Corporate bonds		48,644		1,035		-		49,679
Preferred stock		3,524		257		22		3,759
Total securities available for sale	$	169,913	$	2,452	$	22	$	172,343
Securities held to maturity
Municipal securities	$	2,750	$	246	$	-	$	2,996
Total securities held to maturity	$	2,750	$	246	$	-	$	2,996

December 31, 2011
Securities available for sale
U.S. Treasury and government sponsored entities	$	160,529	$	625	$	50	$	161,104
Municipal securities		16,260		675		-		16,935
U.S. Agency mortgage-backed securities		52		2		-		54
Corporate bonds		43,767		343		1,119		42,991
Preferred stock		996		3		-		999
Total securities available for sale	$	221,604	$	1,648	$	1,169	$	222,083
Securities held to maturity
Municipal securities	$	3,819	$	258	$	-	$	4,077
Total securities held to maturity	$	3,819	$	258	$	-	$	4,077

September 30, 2011
Securities available for sale
U.S. Treasury and government sponsored entities	$	153,017	$	831	$	22	$	153,826
Municipal securities		14,002		536		-		14,538
U.S. Agency mortgage-backed securities		56		2		-		58
Corporate bonds		43,593		439		635		43,397
Total securities available for sale	$	210,668	$	1,808	$	657	$	211,819
Securities held to maturity
Municipal securities	$	4,385	$	234	$	-	$	4,619
Total securities held to maturity	$	4,385	$	234	$	-	$	4,619

The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. There were two, twelve, and ten securities with unrealized losses as of September 30, 2012, December 31, 2011, and 2011, respectively that have been in a loss position for less than twelve months. There were no securities with unrealized losses as of September 30, 2012, December 31, 2011, or September 30, 2011 that have been in an unrealized loss position for more than twelve months. Because the Company does not intend to sell, nor is it required to sell these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.

At September 30, 2012, $38.9 million in securities, or 22%, of the investment portfolio was pledged, as compared to $32.1 million, or 14%, at December 31, 2011, and $30.3 million, or 14%, at September 30, 2011. We held no securities of any single issuer (other than government sponsored entities) that exceeded 10% of our shareholders’ equity at September 30, 2012, December 31, 2011 or September 30, 2011.

The amortized cost and fair values of debt securities at September 30, 2012, are distributed by contractual maturity as shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Although preferred stock has no stated maturity, it is aggregated in the calculation of weighted average yields presented below in the category of investments that mature in ten years or more.



	Amortized Cost		Fair Value		Weighted Average Yield
		(In Thousands)
US Treasury and government sponsored entities
Within 1 year	$	9,998	$	10,007	0.63	%
1-5 years		89,507		89,965	0.69	%
Total	$	99,505	$	99,972	0.69	%

U.S. Agency mortgage-backed securities
5-10 years	$	41	$	43	4.45	%
Total	$	41	$	43	4.45	%

Corporate bonds
Within 1 year	$	3,163	$	3,181	2.89	%
1-5 years		45,481		46,498	2.49	%
Total	$	48,644	$	49,679	2.52	%

Preferred stock
Over 10 years		3,524		3,759	5.57	%
Total	$	3,524	$	3,759	5.57	%

Municipal securities
Within 1 year	$	1,493	$	1,495	0.95	%
1-5 years		10,304		10,619	2.28	%
5-10 years		6,290		6,686	4.68	%
Over 10 years		2,862		3,086	4.78	%
Total	$	20,949	$	21,886	3.24	%

The proceeds and resulting gains and losses, computed using specific identification, from sales of investment securities for the nine months ending September 30, 2012 and 2011, respectively, are as follows:



	Proceeds		Gross Gains		Gross Losses
	(In Thousands)
2012
Available for sale securities	$	30,424	$	273	$	-
2011
Available for sale securities	$	17,030	$	296	$	-

A summary of interest income for the nine months ending September 30, 2012 and 2011 on available for sale investment securities is as follows:



		2012		2011
		(In Thousands)
US Treasury and government sponsored entities	$	755	$	1,197
U.S. Agency mortgage-backed securities		2		2
Other		954		683
Total taxable interest income	$	1,711	$	1,882

Municipal securities	$	429	$	369
Total tax-exempt interest income		429		369
Total	$	2,140	$	2,251

For the periods ending September 30, 2012, December 31, 2011 and September 30, 2011, we held Federal Home Loan Bank of Seattle (“FHLB”) stock with a book value approximately equal to its market value in the amount of $2.0 million for each period. The Company evaluated its investment in FHLB stock for other-than-temporary impairment as of September 30, 2012, consistent with its accounting policy. Based on the Company’s evaluation of the underlying investment, including the fact that the FHLB of Seattle recently began redeeming stock at par, the long-term nature of the investment, the liquidity position of the FHLB of Seattle, the actions being taken by the FHLB of Seattle to address its regulatory capital situation, and the Company’s intent and ability to hold the investment for a period of time sufficient to recover the par value, the Company did not recognize an other-than-temporary impairment loss. Even though the Company did not recognize an other-than-temporary impairment loss during the nine-month period ending September 30, 2012, deterioration in the FHLB of Seattle’s financial position may result in future impairment losses.