Investments

9 Months Ended

Sep. 30, 2011

Investments

Investments

(6) Investments

The amortized cost and carrying values of investment securities at the dates specified are summarized as follows:

	September 30, 2011
(Dollars in thousands)	Amortized cost		Unrealized gains		Unrealized losses		Carrying Amount
Federal agency obligations (1)	$	37,541	$	186	$	—	$	37,727
Federal agency mortgage backed securities (MBS) (1)	35,852		1,577		—		37,429
Municipal securities	45,603		2,428		—		48,031
Total fixed income securities	118,996		4,191		—		123,187
Equity investments	5,645		584		494		5,735
Total available for sale securities, at fair value	$	124,641	$	4,775	$	494	$	128,922

	December 31, 2010
(Dollars in thousands)	Amortized cost		Unrealized gains		Unrealized losses		Carrying Amount
Federal agency obligations(1)	$	41,149	$	55	$	264	$	40,940
MBS(1)	41,581		1,056		112		42,525
Non-agency collateralized mortgage obligation (CMO)	2,386		53		—		2,439
Municipal securities	50,576		1,109		96		51,589
Total fixed income securities	135,692		2,273		472		137,493
Equity investments	3,273		1,300		6		4,567
Total available for sale securities, at fair value	$	138,965	$	3,573	$	478	$	142,060

(1) These categories may include investments issued or guaranteed by government sponsored enterprises such as Fannie Mae (FNMA), Freddie Mac (FHLMC), Ginnie Mae (GNMA), Federal Farm Credit Bank (FFCB), or one of several Federal Home Loan Banks (FHLBs).  All agency MBS/CMO investments owned by the Company are backed by residential mortgages.

Included in the carrying amount of federal agency MBS category were CMOs totaling $23.0 million and $26.0 million at September 30, 2011 and December 31, 2010, respectively.

See Note 13, “Fair Value Measurements” below for further information regarding the Company’s fair value measurements for available-for-sale securities.

The contractual maturity distribution as of September 30, 2011, of the fixed income securities is set forth in the table below:

	Within One Year				After One, But Within Five Years				After Five, But within Ten Years				After Ten Years
	Amortized Cost		Carrying Amount		Amortized Cost		Carrying Amount		Amortized Cost		Carry Amount		Amortized Cost		Carry Amount
Federal agency obligations	$	—	$	—	$	37,541	$	37,727	$	—	$	—	$	—	$	—
MBS	—		—		181		181		15,001		15,549		20,670		21,699
Municipal securities	4,696		4,754		10,633		11,003		16,711		17,707		13,563		14,567
Total Fixed Income	$	4,696	$	4,754	$	48,355	$	48,911	$	31,712	$	33,256	$	34,233	$	36,266

Scheduled contractual maturities may not reflect the actual maturities of the investments. MBS/CMO’s are shown at their final maturity. However, due to prepayments and amortization the actual MBS/CMO cash flows may be faster than presented above. Similarly, included in the carrying value of municipal and federal agency obligations categories are $47.1 million in securities which can be “called” before maturity.  Actual maturity of these callable securities could be shorter if market interest rates decline further.  Management considers these factors when evaluating the net interest margin in the Company’s asset-liability management program.

Net unrealized appreciation and depreciation on investments available for sale, net of applicable income taxes, are reflected as a component of accumulated other comprehensive income.

The net unrealized gain or loss in the Company’s fixed income portfolio fluctuates as market interest rates rise and fall.  Due to the fixed rate nature of this portfolio, as market rates fall the value of the portfolio rises, and as market rates rise, the value of the portfolio declines.  The unrealized gains or losses on fixed income investments will also decline as the securities approach maturity.  Unrealized gains or losses will be recognized in the statements of income if the securities are sold.  However, if an unrealized loss on the fixed income portfolio is deemed to be other than temporary, the credit loss portion is charged to earnings and the noncredit portion is recognized in accumulated other comprehensive income. At September 30, 2011, the Company did not have any unrealized losses on the fixed income portfolio.

The net unrealized gain or loss on equity securities will fluctuate based on changes in the market value of the funds and individual securities held in the portfolio.  Unrealized gains or losses will be recognized in the statements of income if the securities are sold. However, if an unrealized loss on an equity security is deemed to be other than temporary prior to a sale, the loss is charged to earnings.

At September 30, 2011, the equity portfolio consisted primarily of investments in a diversified group of mutual funds, with a small portion of the portfolio (approximately 16%) invested in funds or individual common stock of entities in the financial services industry.  At September 30, 2011, the Company had seventeen investments in equity mutual funds or individual stocks having combined unrealized losses of $494 thousand which were short term in nature.  Management regularly reviews the portfolio for securities with unrealized losses that are other than temporarily impaired.  Management’s assessment includes evaluating if any equity security or fund exhibits fundamental deterioration and whether it is unlikely that the security or fund will completely recover its unrealized loss within a reasonable time period.  In determining the amount of the other than temporary impairment charge, management considers the severity of the declines and the uncertainty of recovery in the short-term for these equities.  Based upon this review, the Company did not consider those equity funds to be other-than-temporarily impaired at September 30, 2011.

During the nine months ended September 30, 2011, the Company did not record any fair value impairment charges on equity investments; during that period, the Company sold $388 thousand of previously impaired equity funds and recognized book gains of $207 thousand.  In addition, the Company sold $9.8 million in other investment securities, primarily municipal securities, and recognized book gains of $540 thousand.

During the nine months ended September 30, 2010, the Company recorded fair value impairment charges of $8 thousand, on a previously impaired equity investment; also during that period, the Company sold $1.6 million of previously impaired equity funds and recognized book gains of $752 thousand, in addition to gains of $25 thousand on other investment securities over the period.

From time to time the Company may pledge securities from its investment portfolio as collateral for various municipal deposit accounts and repurchase agreements.  The fair value of securities pledged as collateral for these purposes was $42.8 million at September 30, 2011.  In addition, securities designated as qualified collateral for FHLB borrowing capacity amounted to $27.2 million at September 30, 2011.  Securities designated as qualified collateral for borrowing from the Federal Reserve Bank of Boston (the “FRB”) through its discount window amounted to $42.6 million at September 30, 2011.