SECURITIES

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements [Abstract]

NOTE 2 - SECURITIES

Information related to the fair value and amortized cost of securities available for sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) at December 31 is provided in the tables below.

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			Gross		Gross
	Fair		Unrealized		Unrealized			Amortized
	Value		Gain		Losses			Cost
2011	(in thousands)
U.S. Treasury securities	$	1,055	$	52	$	0		$	1,003
U.S. government sponsored agencies		5,277		244		0			5,033
Agency residential mortgage-backed securities		350,102		8,989		(923	)		342,036
Non-agency residential mortgage-backed securities		32,207		191		(2,225	)		34,241
State and municipal securities		78,750		5,292		(9	)		73,467
Total	$	467,391	$	14,768	$	(3,157	)	$	455,780

2010
U.S. Treasury securities	$	1,036	$	32	$	0		$	1,004
Agency residential mortgage-backed securities		308,851		10,422		(837	)		299,266
Non-agency residential mortgage-backed securities		62,773		331		(6,136	)		68,578
State and municipal securities		69,960		1,538		(637	)		69,059
Total	$	442,620	$	12,323	$	(7,610	)	$	437,907

Total other-than-temporary impairment recognized in accumulated other comprehensive income was $213,000 for securities available for sale at December 31, 2011 and 2010.

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NOTE 2 – SECURITIES (continued)

Information regarding the fair value and amortized cost of available for sale debt securities by maturity as of December 31, 2011 is presented below. Maturity information is based on contractual maturity for all securities other than mortgage-backed securities. Actual maturities of securities may differ from contractual maturities because borrowers may have the right to prepay the obligation without prepayment penalty.

	Amortized		Fair
	Cost		Value
	(in thousands)
Due in one year or less	$	696	$	700
Due after one year through five years		20,984		22,205
Due after five years through ten years		33,780		36,424
Due after ten years		24,043		25,753
		79,503		85,082
Mortgage-backed securities		376,277		382,309
Total debt securities	$	455,780	$	467,391

Security proceeds, gross gains and gross losses for 2011, 2010 and 2009 were as follows:

	2011		2010		2009
			(in thousands)
Sales of securities available for sale
Proceeds	$	73,318	$	0	$	0
Gross gains		3,997		0		0
Gross losses		4,171		0		0

The Company sold 36 securities with a total book value of $73.5 million and a total fair value of $73.3 million during 2011. The sales were related to a strategic realignment of the securities portfolio, and included six of the seven non-agency residential mortgage backed securities on which the Company had previously recognized other-than-temporary impairment. The remaining gains in 2011 were from calls or maturities. There were no security sales in 2010 and 2009. All of the gains and losses in 2010 and 2009 were from calls.

Securities with carrying values of $247.7 million and $279.6 million were pledged as of December 31, 2011 and 2010, as collateral for deposits of public funds, securities sold under agreements to repurchase, borrowings from the FHLB and for other purposes as permitted or required by law.

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NOTE 2 – SECURITIES (continued)

Information regarding securities with unrealized losses as of December 31, 2011 and 2010 is presented below. The tables distribute the securities between those with unrealized losses for less than twelve months and those with unrealized losses for twelve months or more.

	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
2011						(in thousands)

Agency residential mortgage-backed
securities	$	74,463	$	(860	)	$	4,813	$	(63	)	$	79,276	$	(923	)
Non-agency residential mortgage-backed
securities		3,379		(4	)		23,885		(2,221	)		27,264		(2,225	)
State and municipal securities		341		(2	)		1,003		(7	)		1,344		(9	)
Total temporarily impaired	$	78,183	$	(866	)	$	29,701	$	(2,291	)	$	107,884	$	(3,157	)

2010

Agency residential mortgage-backed
securities	$	55,193	$	(821	)	$	4,170	$	(16	)	$	59,363	$	(837	)
Non-agency residential mortgage-backed
securities		1,607		(2	)		50,786		(6,134	)		52,393		(6,136	)
State and municipal securities		15,811		(577	)		422		(60	)		16,233		(637	)
Total temporarily impaired	$	72,611	$	(1,400	)	$	55,378	$	(6,210	)	$	127,989	$	(7,610	)

The number of securities with unrealized losses as of December 31, 2011 and 2010 is presented below.

	Less than	12 months
	12 months	or more	Total
2011

Agency residential mortgage-backed securities	21	1	22
Non-agency residential mortgage-backed securities	2	9	11
State and municipal securities	3	2	5
Total temporarily impaired	26	12	38

	Less than	12 months
	12 months	or more	Total
2010

Agency residential mortgage-backed securities	13	1	14
Non-agency residential mortgage-backed securities	1	18	19
State and municipal securities	35	1	36
Total temporarily impaired	49	20	69

All of the following are considered to determine whether or not the impairment of these securities is other-than-temporary. Ninety-four percent of the securities are backed by the U.S. Government, government agencies, government sponsored agencies or are A rated or better, except for certain non-local or local municipal securities, which are not rated. Mortgage-backed securities which are not issued by the U.S. Government or government sponsored agencies (non-agency residential mortgage-backed securities) met specific criteria set by the Asset Liability Management Committee at their time of purchase, including having the highest rating available by either Moody’s or S&P. None of the securities have call provisions (with the exception of the municipal securities) and payments as originally agreed are being received. For the government, government-sponsored agency and municipal securities, management did not have concerns of credit losses and there was nothing to indicate that full principal will not be received. Management considered the unrealized losses on these securities to be primarily interest rate driven and does not expect material losses given current market conditions unless the securities are sold, which at this time management does not have the intent to sell nor will it more likely than not be required to sell these securities before the recovery of their amortized cost basis.

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NOTE 2 – SECURITIES (continued)

As of December 31, 2011, the Company had $32.2 million of non-agency residential mortgage-backed securities which were not issued by the federal government or government sponsored agencies, but were rated AAA by S&P and/or Aaa by Moody’s at the time of purchase. As of December 31, 2010, the Company had $62.8 million of non-agency residential mortgage-backed securities which were not issued by the federal government or government sponsored agencies, but were rated AAA by S&P and/or Aaa by Moody’s at the time of purchase. During the first quarter of 2011, the Company sold eight of the non-agency residential mortgage backed securities as part of a strategic realignment of the investment portfolio. The securities sold had a book value of $21.9 million and a fair value of $17.7 million. The sales included six of the seven non-agency residential mortgage backed securities on which the Company had previously recognized other-than-temporary impairment. Five of the fifteen remaining non-agency residential mortgage backed securities were still rated AAA/Aaa as of December 31, 2011 by at least one of the rating agencies S&P, Moody’s and Fitch, but the other ten had been downgraded to below investment grade by at least one of those rating agencies. Five of the 24 non-agency residential mortgage backed securities were still rated AAA/Aaa as of December 31, 2010, but nineteen had been downgraded by S&P, Fitch and/or Moody’s, including eighteen which were ranked below investment grade by one or more rating agencies.

For these non-agency residential mortgage-backed securities, additional analysis is performed to determine if the impairment is temporary or other-than-temporary, in which case impairment would need to be recorded for these securities. The Company performs an independent analysis of the cash flows of the individual securities based upon assumptions as to collateral defaults, prepayment speeds, expected losses and the severity of potential losses. Based upon the initial review, securities may be identified for further analysis computing the net present value using an appropriate discount rate (the current accounting yield) and comparing it to the book value of the security to determine if there is any other-than-temporary impairment that must be recorded. Based on this analysis of the non-agency residential mortgage-backed securities, the Company recorded an other-than-temporary impairment of $286,000 relating to two separate securities in the year ended December 31, 2011, which is equal to the credit loss, establishing a new, lower amortized cost basis. Because management did not have the intent to sell these securities nor did management believe that it was more likely than not they would be required to sell these securities before the recovery of their new, lower amortized cost basis, management did not consider the remaining unrealized losses of the investment securities to be other-than-temporarily impaired at December 31, 2011.

The following table provides information about debt securities for which only a credit loss was recognized in income and other losses were recorded in other comprehensive income.

	2011			2010
	(in thousands)
Balance January 1,	$	1,812		$	225
Additions related to other-than-temporary impairment losses
not previously recognized		42			505
Additional increases to the amount of credit loss for which
other-than-temporary impairment was previously recognized		244			1,082
Reductions for previous credit losses realized on
securities sold during the year		(1,739	)		0
Balance December 31,	$	359		$	1,812

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NOTE 2 – SECURITIES (continued)

Information on securities with at least one rating below investment grade as of December 31, 2011 is presented below.

													12/31/2011		1-Month		3-Month		6-Month
		Other Than		December 31, 2011									Lowest		Constant		Constant		Constant
		Temporary		Par		Amortized		Fair		Unrealized			Credit		Default		Default		Default		Credit
Description	CUSIP	Impairment		Value		Cost		Value		Gain/(Loss)			Rating		Rate		Rate		Rate		Support
				(in thousands)
CWHL 2006-18 2A7	12543WAJ7	$	0	$	2,815	$	2,761	$	2,450	$	(311	)		C		12.89		8.16		4.06		2.89
CWALT 2005-46CB A1	12667G6U2		42		3,530		3,323		2,747		(576	)		CC		5.42		3.95		3.16		3.01
CWALT 2005-J8 1A3	12667GJ20		0		5,043		4,835		4,560		(275	)	CC			7.90		8.60		5.04		6.20
CHASE 2005-S3 A4	16162WNE5		0		333		331		330		(1	)		B1		0.00		0.00		2.43		4.02
CHASE 2006-S3 1A5	16162XAE7		0		1,281		1,279		1,199		(80	)		C		0.84		1.20		2.73		2.20
CMSI 2007-61A5	173103AE2		0		2,523		2,521		2,473		(48	)		B1		5.29		3.04		2.69		6.68
GSR 2006-10F 1A1	36266WAC6		0		3,626		3,374		3,164		(210	)		C		0.00		0.00		1.13		2.17
MALT 2004-6 7 A1	576434SK1		0		3,072		3,052		3,048		(4	)		B1		0.00		0.00		0.00		11.30
MANA 2007-F1 1A1	59023YAA2		0		2,168		2,126		1,745		(381	)		D		0.00		0.00		0.00		0.00
RFMSI 2006-S5 A14	74957EAP2		317		2,707		2,332		2,029		(303	)		D		6.03		4.98		5.45		0.00

		$	359	$	27,098	$	25,934	$	23,745	$	(2,189	)

All of these securities are super senior or senior tranche non-agency residential mortgage-backed securities. The credit support is the credit support percentage for a tranche from other subordinated tranches, which is the amount of principal in the subordinated tranches expressed as a percentage of the remaining principal in the super senior/senior tranche. The super senior/senior tranches receive the prepayments and the subordinate tranches absorb the losses. The super senior/senior tranches do not absorb losses until the subordinate tranches are gone.

The Company does not have a history of actively trading securities, but keeps the securities available for sale should liquidity or other needs develop that would warrant the sale of securities. While these securities are held in the available for sale portfolio, the current intent and ability is to hold them until a recovery in fair value or maturity.

- Definition

This item represents the entire disclosure related to Investments in Certain Debt and Equity Securities (and certain other trading assets) which include all debt and equity securities (other than those equity securities accounted for under the equity or cost methods of accounting) with readily determinable fair values. Other trading assets include assets that are carried on the balance sheet at fair value and held for trading purposes. A debt security represents a creditor relationship with an enterprise that is in the form of a security. Debt securities include, among other items, US Treasury securities, US government securities, municipal securities, corporate bonds, convertible debt, commercial paper, and all securitized debt instruments. An equity security represents an ownership interest in an enterprise or the right to acquire or dispose of an ownership interest in an enterprise at fixed or determinable prices. Equity securities include, among other things, common stock, certain preferred stock, warrant rights, call options, and put options, but do not include convertible debt. An entity may opt to provide the reader with additional narrative text to better understand the nature of investments in debt and equity securities (and other trading assets).

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