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Investments
 6 Months Ended
Jun. 30, 2012
Investments [Abstract]  
Investments

Note 5 - Investments

                 
The amortized cost and estimated fair value of investment securities available for sale as of June 30, 2012 and December 31, 2011 are:
                 
(Dollars in thousands)       Gross   Gross    
    Amortized   Unrealized   Unrealized   Fair
June 30, 2012   Cost   Gains   Losses   Value
Equity securities  

 $               2,105

 

 $                 90

 

 $                (272)

 

 $                1,923

U.S. Government agency securities  

12,219

 

105

 

(26)

 

                 12,298

Municipal securities  

54,684

 

2,902

 

(118)

 

                 57,468

Corporate debt securities  

2,251

 

26

 

(52)

 

                   2,225

Trust preferred securities  

5,898

 

                       -

 

(1,352)

 

                   4,546

Agency mortgage-backed securities  

50,788

 

1,044

 

(121)

 

                 51,711

Private-label mortgage-backed securities  

2,890

 

                       -

 

(304)

 

                   2,586

Asset-backed securities  

                       63

 

                       -

 

                     (16)

 

                        47

   

 $           130,898

 

 $            4,167

 

 $             (2,261)

 

 $            132,804

                 
        Gross   Gross    
(Dollars in thousands)   Amortized   Unrealized   Unrealized   Fair
December 31, 2011   Cost   Gains   Losses   Value
Equity securities  

 $               2,105

 

 $                 11

 

 $                (357)

 

 $                1,759

U.S. Government agency securities  

13,159

 

75

 

(5)

 

                 13,229

Municipal securities  

42,490

 

2,598

 

(7)

 

                 45,081

Corporate debt securities  

2,484

 

                    49

 

(119)

 

                   2,414

Trust preferred securities  

5,890

 

                       -

 

(1,272)

 

                   4,618

Agency mortgage-backed securities  

54,314

 

1,159

 

(188)

 

                 55,285

Private-label mortgage-backed securities  

3,366

 

                      1

 

(500)

 

                   2,867

Asset-backed securities  

                       66

 

                       -

 

                     (18)

 

                        48

   

 $           123,874

 

 $            3,893

 

 $             (2,466)

 

 $            125,301

 

The amortized cost of securities pledged as collateral to secure various funding sources was $103.1 million at June 30, 2012 and $112.1 million at December 31, 2011.

 

The amortized cost and fair value of debt securities as of June 30, 2012, by contractual maturity are shown below. Actual maturities may differ from contractual maturities because of prepayment or call options embedded in the securities.

 

       

Amortized

 

Fair

(Dollars in thousands)

Cost

 

Value

Due in one year or less

 $            5,291

 

 $               5,318

Due after one year through five years

13,964

 

14,741

Due after five years through ten years

17,582

 

18,425

Due after ten years

38,278

 

38,100

             75,115

 

                76,584

Mortgage-backed securities

53,678

 

54,297

 
 

 $        128,793

 

 $           130,881

             

 

 

The following table provides additional detail about trust preferred securities as of June 30, 2012:

 

                                     
Trust Preferred Securities
(Dollars in thousands)
Deal Name   Single Issuer or Pooled   Class   Amortized Cost    Fair Value   Gross Unrealized Gain (Loss)   Lowest Credit Rating Assigned   Number of Banks Currently Performing   Deferrals and Defaults as % of Original Collateral   Expected Deferral/ Defaults as a Percentage of Remaining Performing Collateral
                                     
Huntington Cap Trust   Single   Preferred Stock  

 $         931

 

 $         714

 

 $         (217)

   B   1   None   None
Huntington Cap Trust II Single   Preferred Stock   878   685   (193)   B   1   None   None
BankAmerica Cap III   Single   Preferred Stock   958   709   (249)   BB   1   None   None
Wachovia Cap Trust II   Single   Preferred Stock   274   228   (46)   Baa2   1   None   None
Corestates Captl Tr II   Single   Preferred Stock   927   765   (162)   Baa1   1   None   None
Chase Cap VI JPM   Single   Preferred Stock   958   711   (247)   BBB   1   None   None
Fleet Cap Tr V   Single   Preferred Stock   972   734   (238)   BB   1   None   None
           

 $      5,898

 

 $      4,546

 

 $      (1,352)

                
                                     

The following table provides additional detail about private label mortgage-backed securities as of June 30, 2012:

 

                                 
Private Label Mortgage Backed Securities
(Dollars in thousands)               Gross                 Cummulative
    Orgination    Amortized   Fair    Unrealized   Collateral    Lowest Credit   Credit    OTTI
Decscription   Date   Cost   Value   Gain (Loss)   Type   Rating Assigned   Support %   Charges
RALI 2004-QS4 A7   03/01/04  

 $              379

 

 $             376

 

                  (3)

 

ALT A

 

AA

 

12.38

 

                 -  

MALT 2004-6 7A1   06/01/04  

                 583

 

                548

 

                (35)

 

ALT A

 

B

 

11.61

 

                 -  

RALI 2005-QS2 A1   02/01/05  

                 502

 

                484

 

                (18)

   ALT A   CC  

7.16

  

                 -  

RALI 2006-QS4 A2   04/01/06  

                 804

 

                636

 

              (168)

   ALT A   D  

-  

 

              218

GSR 2006-5F 2A1   05/01/06  

                 202

 

                188

 

                (14)

   Prime   C  

1.26

  

                 -  

RALI 2006-QS8 A1   07/28/06  

                 420

 

                354

 

                (66)

   ALT A   D  

 -  

 

              172

       

 $           2,890

 

 $          2,586

 

 $           (304)

              

 $           390

                                 

At June 30, 2012, the investment portfolio contained 65 securities with $34.1 million of temporarily impaired fair value and $2.3 million in unrealized losses. The unrealized loss position is less than at year-end 2011, but there are more securities with an unrealized loss and the temporarily impaired fair value is higher due to an increase in the fair value of municipal bonds with an unrealized loss. The trust preferred sector continues to show the largest unrealized loss at $1.4 million on seven securities, virtually unchanged from the prior-year end.

           

For securities with an unrealized loss, Management applies a systematic methodology in order to perform an assessment of the potential for "other-than-temporary" impairment. In the case of debt securities, investments considered for "other-than-temporary" impairment: (1) had a specified maturity or repricing date; (2) were generally expected to be redeemed at par, and (3) were expected to achieve a recovery in market value within a reasonable period of time. In addition, the Bank considers whether it intends to sell these securities or whether it will be forced to sell these securities before maturity. Equity securities are assessed for other-than-temporary impairment based on the length of time of impairment, dollar amount of the impairment and general market and financial conditions relating to specific issues. Accordingly, the impairments identified on debt and equity securities and subjected to the assessment at June 30, 2012 were deemed to be temporary and required no further adjustment to the financial statements, unless otherwise noted.

 

The following table reflects temporary impairment in the investment portfolio (excluding restricted stock), aggregated by investment category, length of time that individual securities have been in a continuous unrealized loss position and the number of securities in each category as of June 30, 2012 and December 31, 2011:

 

                                     
    June 30, 2012
    Less than 12 months   12 months or more   Total
    Fair   Unrealized       Fair    Unrealized       Fair    Unrealized    
(Dollars in thousands)   Value   Losses   Number   Value   Losses   Number   Value   Losses   Number
                                     
Equity securities  

 $          129

 

 $             (5)

 

3

 

 $        1,205

 

 $           (267)

 

13

 

 $         1,334

 

 $        (272)

 

 16
U.S. Government agency securities  

          4,944

 

              (24)

 

5

 

           1,257

 

                  (2)

 

5

 

            6,201

 

             (26)

 

10

Municipal securities  

          4,854

 

            (118)

 

5

 

                -  

 

                  -  

 

     -  

 

            4,854

 

           (118)

 

5

Corporate debt securities  

                -  

 

                -  

 

        -

 

           1,954

 

                (52)

 

2

 

            1,954

 

             (52)

 

2

Trust preferred securities  

                -  

 

                -  

 

        -

 

           4,546

 

           (1,352)

 

7

 

            4,546

 

        (1,352)

 

7

Agency mortgage-backed securities  

          7,008

 

              (42)

 

8

 

           5,613

 

                (79)

 

       8

 

          12,621

 

           (121)

 

16

Private-label mortgage-backed securities  

             924

 

              (38)

 

        2

 

           1,662

 

              (266)

 

       4

 

            2,586

 

           (304)

 

6

Asset-backed securities  

                -  

 

                -  

 

        -

 

                47

 

                (16)

 

3

 

                 47

 

             (16)

 

3

   Total temporarily impaired securities  

 $     17,859

 

 $         (227)

 

23

 

 $      16,284

 

 $        (2,034)

 

42

 

 $       34,143

 

 $     (2,261)

 

65

                                     
    December 31, 2011
    Less than 12 months   12 months or more   Total
    Fair   Unrealized       Fair    Unrealized       Fair    Unrealized    
(Dollars in thousands)   Value   Losses   Number   Value   Losses   Number   Value   Losses   Number
                                     
Equity securities  

 $          394

 

 $         (111)

 

        3

 

 $           864

 

 $           (246)

 

13

 

 $         1,258

 

 $        (357)

 

16

U.S. Government agency securities  

          6,068

 

                (3)

 

        5

 

           1,321

 

                  (2)

 

       5

 

            7,389

 

               (5)

 

10

Municipal securities  

             579

 

                (7)

 

1

 

                -  

 

                  -  

 

     -  

 

               579

 

               (7)

 

1

Corporate debt securities  

                -  

 

                -  

 

        -

 

           1,889

 

              (119)

 

2

 

            1,889

 

           (119)

 

2

Trust preferred securities  

                -  

 

                -  

 

        -

 

           4,618

 

           (1,272)

 

7

 

            4,618

 

        (1,272)

 

7

Agency mortgage-backed securities  

        12,452

 

            (156)

 

      12

 

           1,174

 

                (32)

 

       1

 

          13,626

 

           (188)

 

13

Private-label mortgage-backed securities  

          1,057

 

              (36)

 

        2

 

           1,636

 

              (464)

 

       4

 

            2,693

 

           (500)

 

6

Asset-backed securities  

                -  

 

                -  

 

        -

 

                48

 

                (18)

 

3

 

                 48

 

             (18)

 

 3
   Total temporarily impaired securities  

 $     20,550

 

 $         (313)

 

23

 

 $      11,550

 

 $        (2,153)

 

35

 

 $       32,100

 

 $     (2,466)

 

58

                                     

The trust preferred portfolio contains the largest unrealized loss in the portfolio. At June 30, 2012 this sector contained seven securities with a fair value of $4.5 million and an unrealized loss of $1.4 million. These values are virtually unchanged from the prior year-end. Trust-preferred securities held by the Bank are single entity issues, not pooled trust preferred securities. Therefore, the impairment review of these securities is based only on the issuer and the security cannot be impaired by the performance of other issuers as if it was a pooled trust-preferred bond. All of the Bank's trust preferred securities are single issue, variable rate notes with long maturities (2027 – 2028) from companies that received money (and in some cases paid back) from the Troubled Asset Relief Program (TARP), continue to pay dividends and have raised capital. None of these bonds have suspended or missed a dividend payment. At June 30, 2012, the Bank believes it will be able to collect all interest and principal due on these bonds and no other-than-temporary-impairment charges were recorded. See the Trust Preferred Securities table for additional information.

 

The private label mortgage backed securities (PLMBS) sector shows an unrealized loss of $304 thousand, an improvement over the $500 thousand unrealized loss at December 31, 2011. These bonds were all rated AAA at time of purchase, but have since experienced rating declines. Some have experienced increased delinquencies and defaults, while others have seen the credit support increase as the bonds paid-down. The Bank monitors the performance of the PLMBS investments on a regular basis and reviews delinquencies, default rates, credit support levels and various cash flow stress test scenarios. In determining the credit related loss, Management considers all principal past due 60 days or more as a loss. If additional principal moves beyond 60 days past due, it will also be considered a loss. As a result of the analysis on PLMBS it was determined that no impairment charges were required at June 30, 2012. The Bank has recorded $390 thousand of cumulative impairment charges on this portfolio. Management continues to monitor these securities and it is possible that additional write-downs may occur if current loss trends continue. The Bank is currently participating in a class-action lawsuit against one PLMBS servicer that centers on defective warranties and representations made as part of the underwriting process. See the PLMBS table above for additional information.

 

The Bank held $4.5 million of restricted stock at June 30, 2012.  Except for $30 thousand, this investment represents stock in FHLB Pittsburgh. The Bank is required to hold this stock to be a member of FHLB and it is carried at cost of $100 per share.  In December 2008, FHLB announced it would suspend its regular cash dividend and the regular repurchase of excess capital stock from its members as part of its capital restoration plan.  However, FHLB has made stock repurchases of $487 thousand during the year. In addition, FHLB paid a small dividend during the year.  Despite these actions, it does not appear as if FHLB has resumed its past practice of redeeming excess capital stock on a regular basis or paying a regular dividend.   FHLB stock is evaluated for impairment primarily based on an assessment of the ultimate recoverability of its cost. As a government sponsored entity, FHLB has the ability to raise funding through the U.S. Treasury that can be used to support its operations.  There is not a public market for FHLB stock and the benefits of FHLB membership (e.g., liquidity and low cost funding) add value to the stock beyond purely financial measures. Management intends to remain a member of the FHLB and believes that it will be able to fully recover the cost basis of this investment.