Note 4 – Investments

The amortized cost and fair value of our available-for-sale securities ("AFS") and the corresponding amounts of gross unrealized gains and losses at the dates indicated were as follows:

	Amortized Cost		Gross Unrealized								Estimated FairValue
			Gains		Losses 1 Year Or Less			Losses Greater Than 1 Year
			Gains		Losses 1 Year Or Less			Losses Greater Than 1 Year
March 31, 2013	(In thousands)
Agency mortgage-backed securities	$	17,276	$	5	$	(265	)	$	-		$	17,016
Non-agency mortgage-backed securities		3,121		53		-		$	(477	)		2,697
Total	$	20,397	$	58	$	(265	)	$	(477	)	$	19,713

December 31, 2012
Agency mortgage-backed securities	$	20,378	$	27	$	(278	)	$	-		$	20,127
Non-agency mortgage-backed securities		3,273		19		-			(519	)		2,773
Total	$	23,651	$	46	$	(278	)	$	(519	)	$	22,900

The amortized cost and fair value of mortgage-backed securities by contractual maturity, at March 31, 2013, are shown below. Expected maturities of mortgage-backed securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	At March 31, 2013
	Amortized Cost		Fair Value
	(In thousands)
Due after ten years	$	20,397	$	19,713

Securities with an amortized cost of $8.1 million and fair value of $8.0 million at March 31, 2013 were pledged to secure Washington State Public Funds. Additionally, the Company has letters of credit with a notional amount of $24.5 million to secure public deposits.

There were no sales of available for sale securities during the three months ended March 31, 2013 and 2012.

The following table summarizes at the dates indicated the aggregate fair value and gross unrealized loss by length of time of those investments that have been continuously in an unrealized loss position:

	March 31, 2013
	Less Than 12 Months						12 Months or Longer					Total
	Fair Value			Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
March 31, 2013	(In thousands)
Agency mortgage-backed securities	$	16,962		$	(265	)	$	-	$	-		$	16,962	$	(265	)
Non-agency mortgage-backed securities		-			-			1,503		(477	)		1,503		(477	)
Total	$	16,962		$	(265	)	$	1,503	$	(477	)	$	18,465	$	(742	)

	December 31, 2012
	Less Than 12 Months						12 Months or Longer					Total
	Fair Value		Unrealized Loss				Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
December 31, 2012	(In thousands)
Agency mortgage-backed securities	$	17,685		$	(278	)	$	-	$	-		$	17,685	$	(278	)
Non-agency mortgage-backed securities		-			-			2,137		(519	)		2,137		(519	)
Total	$	17,685		$	(278	)	$	2,137	$	(519	)	$	19,822	$	(797	)

The following table presents the cumulative roll forward of credit losses recognized in earnings during the three months ended March 31, 2013 and 2012 relating to the Company's non-U.S. agency mortgage backed securities:

	Three Months Ended March 31,
	2013		2012
	(In thousands)
Estimated credit losses, beginning balance	$	420	$	256
Additions for credit losses not previously recognized		19		91
Reduction for increases in cash flows		-		-
Reduction for realized losses		-		-
Estimated credit losses, ending balance	$	439	$	347

As of March 31, 2013, our securities portfolio consisted of 17 U.S. agency and five non-U.S. agency mortgage backed securities with a fair value of $19.7 million. Three of the five non-U.S. agency securities and 15 of the 17 U.S. agency securities were in an unrealized loss position. The unrealized losses were caused by changes in interest rates and market illiquidity causing a decline in the fair value subsequent to the purchase. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than par. While management does not intend to sell the non-agency mortgage backed securities, and it is unlikely that the Company will be required to sell these securities before recovery of its amortized cost basis, management's impairment evaluation indicates that certain securities possess qualitative and quantitative factors that suggest an other-than-temporary impairment ("OTTI"). These factors include, but are not limited to: the length of time and extent of the fair value declines, ratings agency down grades, the potential for an increased level of actual defaults, and the extension in duration of the securities. In addition to the qualitative factors, management's evaluation includes an assessment of quantitative evidence that involves the use of cash flow modeling and present value calculations as determined by considering the applicable OTTI accounting guidance. The Company compares the present value of the current estimated cash flows to the present value of the previously estimated cash flows. Accordingly, if the present value of the current estimated cash flows is less than the present value of the previous period's present value, an adverse change is considered to exist and the security is considered OTTI. The associated "credit loss" is the amount by which the security's amortized cost exceeds the present value of the current estimated cash flows. Based upon the results of the cash flow modeling, four securities reflected OTTI of $19,000 during the three months ended March 31, 2013. Estimating the expected cash flows and determining the present values of the cash flows involves the use of a variety of assumptions and complex modeling. In developing its assumptions, the Company considers all available information relevant to the collectability of the applicable security, including information about past events, current conditions, and reasonable and supportable forecasts. Furthermore, the Company asserts that the cash flows used in the determination of OTTI are its "best estimate" of cash flows.