SECURITIES

9 Months Ended

Sep. 30, 2012

Securities [Abstract]

SECURITIES

NOTE 5. 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) is provided in the tables below.

			Gross		Gross
	Fair		Unrealized		Unrealized			Amortized
	Value		Gain		Losses			Cost
September 30, 2012
U.S. Treasury securities	$	1,042	$	40	$	0		$	1,002
U.S. government sponsored agencies		5,316		288		0			5,028
Agency residential mortgage-backed securities		385,298		9,051		(1,511	)		377,758
Non-agency residential mortgage-backed securities		6,982		267		0			6,715
State and municipal securities		82,618		5,740		(43	)		76,921
Total	$	481,256	$	15,386	$	(1,554	)	$	467,424
December 31, 2011
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

Total other-than-temporary impairment recognized in accumulated other comprehensive income was $0 at September 30, 2012 and $213,000 at December 31, 2011.

Information regarding the fair value and amortized cost of available for sale debt securities by maturity as of September 30, 2012 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
Due in one year or less	$	2,118	$	2,106
Due after one year through five years		23,461		25,108
Due after five years through ten years		35,516		38,272
Due after ten years		21,856		23,490
		82,951		88,976
Mortgage-backed securities		384,473		392,280
Total debt securities	$	467,424	$	481,256

Security proceeds, gross gains and gross losses are presented below.

	Nine months ended September 30,
	2012			2011
Sales of securities available for sale
Proceeds	$	28,877		$	73,318
Gross gains		823			4,005
Gross losses		(1,203	)		(4,171	)

	Three months ended September 30,
	2012			2011
Sales of securities available for sale
Proceeds	$	28,877		$	0
Gross gains		823			0
Gross losses		(1,203	)		0

The Company sold eleven securities with a total book value of $29.3 million and a total fair value of $28.9 million during the first nine months of 2012. The sales included nine non-agency residential mortgage backed securities, including all five on which the Company had previously recognized other-than-temporary impairment. The remaining gains during the first nine months of 2012 were from calls. The Company sold 36 securities with a total book value of $73.5 million and a total fair value of $73.3 million during the first nine months of 2011. The sales in 2011 included eight non-agency residential mortgage backed securities. The securities sales in both 2012 and 2011 were related to a strategic realignment of the securities portfolio.

Purchase premiums or discounts are recognized in interest income using the interest method over the terms of the securities or over estimated lives for mortgage-backed securities. Gains and losses on sales are based on the amortized cost of the security sold and recorded on the trade date.

Securities with carrying values of $199.3 million and $249.8 million were pledged as of September 30, 2012 and 2011, as collateral for deposits of public funds, securities sold under agreements to repurchase, borrowings from the Federal Home Loan Bank and for other purposes as permitted or required by law.

Information regarding securities with unrealized losses as of September 30, 2012 and December 31, 2011 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
September 30, 2012
Agency residential mortgage-backed   securities	$	85,988	$	(998	)	$	31,206	$	(513	)	$	117,194	$	(1,511	)
State and municipal securities		4,250		(42	)		50		(1	)		4,300		(43	)
Total temporarily impaired	$	90,238	$	(1,040	)	$	31,256	$	(514	)	$	121,494	$	(1,554	)

	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
December 31, 2011
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	)

The number of securities with unrealized losses as of September 30, 2012 and December 31, 2011 is presented below.

	Less than		12 months
	12 months		or more		Total
September 30, 2012
Agency residential mortgage-backed securities		21		11		32
State and municipal securities		22		1		23
Total temporarily impaired		43		12		55

	Less than		12 months
	12 months		or more		Total
December 31, 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

All of the following are considered to determine whether or not the impairment of these securities is other-than-temporary. Ninety-eight 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 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 all payments on the securities have been received on their original terms. For the government, government-sponsored agency and municipal securities, management was not concerned about the risk of credit losses, and there was nothing to indicate that full payment of the 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. However, at this time management does not have the intent to sell and it is more likely than not that it will not be required to sell these securities before the recovery of their amortized cost basis.

As of September 30, 2012, the Company had $7.0 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. At December 31, 2011, the Company had $32.2 million of these non-agency residential mortgage-backed securities. During the third quarter of 2012 the Company sold nine 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 $20.7 million and a fair value of $19.5 million. The sales included all five of the securities on which the Company had previously recognized other-than-temporary impairment. None of the five remaining non-agency residential mortgage backed securities were still rated AAA/Aaa as of September 30, 2012 by at least one of the rating agencies S&P, Moody’s and Fitch, however, none of the five have been downgraded to below investment grade by any of those 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 by 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 $67,000 and $1.0 million, respectively, relating to four securities in the three-months and nine-months ended September 30, 2012, which is equal to the credit loss, establishing a new, lower amortized cost basis. All of the securities on which the Company had recognized other-than-temporary impairment were sold during the third quarter of 2012. None of the five remaining non-agency mortgage backed securities had any unrealized losses at September 30, 2012.

The following table provides information about debt securities for which only a credit loss was recognized in income and other losses are recorded in other comprehensive income. The table represents the three months and nine months ended September 30, 2012 and 2011.

	Three Months Ended September 30,
	2012			2011
Balance July 1,	$	1,318		$	194
Additions related to other-than-temporary impairment losses not previously recognized		0			0
Additional increases to the amount of credit loss for which other-than-temporary impairment was previously recognized		67			33
Reductions for previous credit losses realized on securities sold during the year		(1,385	)		0
Balance September 30,	$	0		$	227

	Nine Months Ended September 30,
	2012			2011
Balance January 1,	$	359		$	1,812
Additions related to other-than-temporary impairment losses not previously recognized		747			0
Additional increases to the amount of credit loss for which  other-than-temporary impairment was previously recognized		279			154
Reductions for previous credit losses realized on securities sold during the year		(1,385	)		(1,739	)
Balance September 30,	$	0		$	227

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, it is management’s current intent and ability to hold them until a recovery in fair value or maturity.