Investment Securities

3 Months Ended

Mar. 31, 2012

Notes to Financial Statements [Abstract]

Investment Securities

(4) Investment Securities - Available-for-Sale

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

	March 31, 2012
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
Debt investment securities:
US Treasury, agencies and GSEs	$	10,340	$	36	$	(69	)	$	10,307
State and political subdivisions		21,951		761		(85	)		22,627
Corporate		24,717		134		(534	)		24,317
Residential mortgage-backed - US agency		65,393		1,416		(117	)		66,692
Residential mortgage-backed - private label		450		13		-			463
Total		122,851		2,360		(805	)		124,406
Equity investment securities:
Mutual funds:
Ultra short mortgage fund		1,286		12		-			1,298
Large cap equity fund		905		202		-			1,107
Other mutual funds		183		73		-			256
Common stock - financial services industry		443		2		-			445
Total		2,817		289		-			3,106
Total investment securities	$	125,668	$	2,649	$	(805	)	$	127,512

	December 31, 2011
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
Debt investment securities:
US Treasury, agencies and GSEs	$	5,025	$	48	$	-		$	5,073
State and political subdivisions		19,508		797		(1	)		20,304
Corporate		21,086		38		(690	)		20,434
Residential mortgage-backed - US agency		49,665		1,395		(4	)		51,056
Residential mortgage-backed - private label		505		14		-			519
Total		95,789		2,292		(695	)		97,386
Equity investment securities:
Mutual funds:
Ultra short mortgage fund		1,286		12		-			1,298
Large cap equity fund		905		119		-			1,024
Other mutual funds		183		60		-			243
Common stock - financial services industry		443		2		(1	)		444
Total		2,817		193		(1	)		3,009
Total investment securities	$	98,606	$	2,485	$	(696	)	$	100,395

The amortized cost and estimated fair value of debt investments at March 31, 2012 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	$	5,623	$	5,656
Due after one year through five years		23,033		23,164
Due after five years through ten years		8,325		8,633
Due after ten years		20,027		19,798
Mortgage-backed securities		65,843		67,155
Totals	$	122,851	$	124,406

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:

	March 31, 2012
	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 GSE's	$	(69	)	$	6,248	$	-		$	-	$	(69	)	$	6,248
State and political subdivisions		(85	)		2,714		-			-		(85	)		2,714
Corporate		(45	)		6,834		(489	)		1,479		(534	)		8,313
Residential mortgage-backed - US agency		(117	)		13,950		-			-		(117	)		13,950
	$	(316	)	$	29,746	$	(489	)	$	1,479	$	(805	)	$	31,225
	December 31, 2011
	Less than Twelve Months					Twelve Months or More					Total
	Unrealized			Fair		Unrealized			Fair		Unrealized			Fair
	Losses			Value		Losses			Value		Losses			Value
(In thousands)
State and political subdivisions	$	(1	)	$	412	$	-		$	-	$	(1	)	$	412
Corporate		(131	)		13,489		(559	)		1,410		(690	)		14,899
Residential mortgage-backed - US agency		(4	)		1,896		-			-		(4	)		1,896
Common stock-financial services industry		-			-		(1	)		3		(1	)		3
	$	(136	)	$	15,797	$	(560	)	$	1,413	$	(696	)	$	17,210

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 anticipated to be 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 and changes in the general interest rate environment.  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.  The gross OTTI would then be offset by the amount of non-credit-related OTTI, showing the net as the impact on earnings.

At March 31, 2012, eight U.S. government agency and government sponsored enterprise ("GSE") bonds are in unrealized loss positions. Four of these holdings are callable agency bullet bonds issued by the Federal Home Loan Bank and the Federal National Mortgage Association.  The remaining four are callable bonds issued by the Federal Farm Credit Bank. All eight positions are AA+ rated by S & P.  Five of these bonds have been in an unrealized loss position for two months with unrealized losses of 2.06% or less of their current carrying values. The remaining three bonds have been in an unrealized loss position for only one month with an unrealized loss of 0.64% or less of their current carrying value. The unrealized losses relate principally to changes in interest rates subsequent to the acquisition of the specific securities.  No OTTI is deemed present on these securities.

At March 31, 2012, six state and political subdivision securities are in an unrealized loss position.  All six securities are A rated or better by Moody's or S & P.  Each security has been in an unrealized loss position for only one month. The unrealized losses relate principally to changes in interest rates subsequent to the acquisition of the specific securities.  No other than temporary impairment is deemed present on this security.

At March 31, 2012, eleven corporate securities were in unrealized loss positions.  Nine of the eleven securities are currently A rated or better by Moody's or S&P.  All nine holdings have an unrealized loss that is 2.22% of their associated book value or less. Two of the nine holdings have been in an unrealized loss position for five months and the remaining seven have been in loss positions for four months or less.  The Company does not intend to sell and it is not likely that the Company will be required to sell those securities until recovery or final maturity. The unrealized losses relate principally to changes in interest rates subsequent to the acquisition of the specific securities.  No other than temporary impairment is deemed present on these securities.

The remaining two corporate securities represent trust-preferred issuances from large money center financial institutions.  The J.P. Morgan Chase floating rate trust-preferred security has a carrying value of $986,000 and a fair value of $769,000. The Bank of America floating rate trust-preferred security has a carrying value of $982,000 and a fair value of $710,000.  The securities are rated A2 and Ba1 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 15 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 extensive 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.

Fourteen US government agency and GSE residential mortgage-backed security holdings have an unrealized loss as of March 31, 2012. The securities were issued by the Government National Mortgage Association, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation.  One holding has been in an unrealized loss position for 6 months, at 0.10% of its associated book value.  The remaining 13 have been in an unrealized loss position for 3 months or less. 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 and the length of time the equity security's fair value has been below the carrying amount. Management has determined that we have 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 March 31, 2012.   A small common stock investment in The Phoenix Companies has an unrealized loss of less than $1,000.  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 March 31:

(In thousands) 2012			2011
Beginning balance - January 1	$	-	$	875
Reductions for securities sold		-		-
Ending balance - March 31	$	-	$	875

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

Gross realized gains (losses) on sales of securities for the three months ended March 31, are detailed below:

(In thousands)	2012		2011
Realized gains	$	112	$	30
Realized losses		-		(3	)
	$	112	$	27

As of March 31, 2012 and December 31, 2011, securities with a fair value of $72.5 million and $61.2 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.