Investment Securities

6 Months Ended

Jun. 30, 2011

Notes to Financial Statements [Abstract]

Investment Securities

(5) Investment Securities

The amortized cost and estimated fair value of investment securities are summarized as follows:

	June 30, 2011
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
Debt investment securities:
US Treasury, agencies and GSEs	$	16,038	$	83	$	(16	)	$	16,105
State and political subdivisions		19,466		721		(1	)		20,186
Corporate		5,770		116		(360	)		5,526
Residential mortgage-backed - agency		43,519		1,331		(49	)		44,801
Residential mortgage-backed - private label		631		16		-			647
Total		85,424		2,267		(426	)		87,265
Equity investment securities:
Mutual funds:
Ultra short mortgage fund		1,286		19		-			1,305
Large cap equity fund		905		128		-			1,033
Other mutual funds		183		74		-			257
Common stock - financial services industry		450		4		-			454
Total		2,824		225		-			3,049
Total investment securities	$	88,248	$	2,492	$	(426	)	$	90,314

	December 31, 2010
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
Debt investment securities:
US Treasury, agencies and GSEs	$	20,137	$	139	$	(253	)	$	20,023
State and political subdivisions		19,227		174		(422	)		18,979
Corporate		5,865		228		(493	)		5,600
Residential mortgage-backed - agency		35,714		934		(239	)		36,409
Residential mortgage-backed - private label		816		21		-			837
Total		81,759		1,496		(1,407	)		81,848
Equity investment securities:
Mutual funds:
Ultra short mortgage fund		1,532		26		-			1,558
Large cap equity fund		1,129		93		-			1,222
Other mutual funds		183		61		-			244
Common stock - financial services industry		450		5		-			455
Total		3,294		185		-			3,479
Total investment securities	$	85,053	$	1,681	$	(1,407	)	$	85,327

The amortized cost and estimated fair value of debt investments at June 30, 2011 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.

	Amortized		Estimated
	Cost		Fair Value
(In thousands)
Due in one year or less	$	3,107	$	3,173
Due after one year through five years		17,477		17,667
Due after five years through ten years		10,722		11,125
Due after ten years		9,968		9,852
Mortgage-backed securities		44,150		45,448
Totals	$	85,424	$	87,265

The Company’s investment securities’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

	June 30, 2011
	Less than Twelve Months					Twelve Months or More					Total
	Unrealized			Fair		Unrealized			Fair		Unrealized			Fair
	Losses			Value		Losses			Value		Losses			Value
(In thousands)
US Treasury, agencies and GSEs	$	(16	)	$	984	$	-		$	-	$	(16	)	$	984
State and political subdivisions		(1	)		131		-			-		(1	)		131
Corporate		(1	)		526		(359	)		1,608		(360	)		2,134
Residential mortgage-backed - agency		(49	)		9,109		-			-		(49	)		9,109
	$	(67	)	$	10,750	$	(359	)	$	1,608	$	(426	)	$	12,358
	December 31, 2010
	Less than Twelve Months					Twelve Months or More					Total
	Unrealized			Fair		Unrealized			Fair		Unrealized			Fair
	Losses			Value		Losses			Value		Losses			Value
(In thousands)
US Treasury, agencies and GSEs	$	(253	)	$	9,260	$	-		$	-	$	(253	)	$	9,260
State and political subdivisions		(422	)		10,173		-			-		(422	)		10,173
Corporate		-			-		(493	)		1,473		(493	)		1,473
Residential mortgage-backed - agency		(239	)		8,861		-			-		(239	)		8,861
	$	(914	)	$	28,294	$	(493	)	$	1,473	$	(1,407	)	$	29,767

We conduct a formal review of investment securities on a quarterly basis for the presence of other-than-temporary impairment (“OTTI”). We assess whether OTTI is present when the fair value of a debt security is less than its amortized cost basis at the statement of condition date. Under these circumstances, OTTI is considered to have occurred (1) if we intend to sell the security; (2) if it is “more likely than not” we will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not sufficient to recover the entire amortized cost basis. The guidance requires that credit-related OTTI is recognized in earnings while non-credit-related OTTI on securities not expected to be sold is recognized in other comprehensive income (“OCI”). Non-credit-related OTTI is based on other factors, including illiquidity. Presentation of OTTI is made in the consolidated statement of income on a gross basis, including both the portion recognized in earnings, as well as the portion recorded in OCI.

At June 30, 2011, one U.S. GSE bond is in an unrealized loss position. The holding is Aaa rated by S & P, and has been in an unrealized loss position for seven months.  The holding has an unrealized loss of 1.6% of its book value.  The unrealized loss relates principally to changes in interest rates subsequent to the acquisition of the specific securities.  No OTTI is deemed present on this security.

At June 30, 2011, six state and political subdivision securities are in unrealized loss positions. All of the securities were issued by the Town of Oswego, NY and have unrealized losses of $250 or less. All 6 of these positions have been in an unrealized loss positions for only one month.  All positions are unrated.   No other than temporary impairment is deemed present on these securities.

At June 30, 2011, two corporate securities were in unrealized loss positions and represent trust-preferred issuances from large money center financial institutions.  The JP Morgan Chase floating rate trust-preferred security has a carrying value of $986,000 and a fair value of $822,000. The Bank of America floating rate trust-preferred security has a carrying value of $981,000 and a fair value of $786,000.  The securities are rated A2 and Baa3 by Moody’s, respectively.  The securities are both floating rate notes that adjust quarterly to LIBOR. These securities are reflecting a net unrealized loss due to current similar offerings being originated at higher spreads to LIBOR, as the market currently demands a greater pricing premium for the associated risk. Management has performed a detailed credit analysis on the underlying companies and has concluded that neither issue is credit impaired.  Due to the fact that each security has approximately 16 years until final maturity, and management has determined that there is no related credit impairment, the associated pricing risk is managed similar to long-term, low yielding, 15 and 30-year fixed rate residential mortgages carried in the Company’s loan portfolio.  The risk is managed through the Company’s interest rate risk management procedures.  The Company expects the present value of expected cash flows will be sufficient to recover the amortized cost basis.  Thus, the securities are not deemed to be other-than-temporarily impaired.

 Nine government agency and government sponsored enterprise (GSE) residential mortgage-backed security holdings have an unrealized loss as of June 30, 2011.  The securities were issued by the Government National Mortgage Association, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation.  The unrealized losses have been in place for nine months or less, and have unrealized losses of 1.5% or less as compared to their respective carrying values.  All securities have an implied AAA rating. The unrealized losses relate principally to changes in interest rates subsequent to the acquisition of the specific security.    No OTTI is deemed present on these securities.

In determining whether OTTI has occurred for equity securities, the Company considers the applicable factors described above, the length of time the equity security’s fair value has been below the carrying amount and whether the Company has the intent and ability to retain the equity securities for a sufficient period of time to allow for recovery.  The Company holds one equity security that had a fair value less than the carrying value at June 30, 2011.   A small common stock investment in The Phoenix Companies has an unrealized loss of less than $350.  Due to the relatively small size of the unrealized loss and short duration of the loss period, no OTTI is deemed present in relation to this security.

The following table presents a roll-forward of the amount related to credit losses recognized in earnings for the periods ended June 30:

(In thousands)	2011			2010
Beginning balance – January 1	$	875		$	875
Initial credit impairment		-			-
Subsequent credit impairments		-			-
Reductions for amounts recognized in earnings due to intent or requirement to sell		-			-
Reductions for securities sold		(875	)		-
Reductions for increases in cash flows expected to be collected		-			-
Ending balance - June 30	$	-		$	875

The above credit losses were related to one security that was sold at a small gain during the period ended June 30, 2011.

Gross realized gains (losses) on sales of securities for the three and six months ended June 30, are detailed below:

	For the three months					For the six months
	ended June 30, 2011					ended June 30, 2011
(In thousands)	2011			2010		2011			2010
Realized gains	$	297		$	17	$	328		$	28
Realized losses		(2	)		-		(5	)		-
	$	295		$	17	$	323		$	28

As of June 30, 2011 and December 31, 2010, securities with an amortized cost of $66.4 million and $47.5 million, respectively, were pledged to collateralize certain deposit and borrowing arrangements.

Management has reviewed its loan and mortgage-backed securities portfolios and determined that, to the best of its knowledge, little or no exposure exists to sub-prime or other high-risk residential mortgages.  The Company is not in the practice of investing in, or originating these types of investments or loans.