Securities

9 Months Ended

Sep. 30, 2011

Note 7. Securities

This table provides the major components of securities available for sale ("AFS") and held to maturity ("HTM") at amortized cost and estimated fair value at September 30, 2011 and December 31, 2010:

	September 30, 2011									December 31, 2010
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available for sale:
US Government sponsored entities	$	7,284	$	116	$	-		$	7,400	$	6,415	$	47	$	-		$	6,462
State and political subdivisions		13,493		623		-			14,116		11,246		23		(306	)		10,963
Residential mortgage-backed securities		60,531		1,834		(327)			62,038		84,359		2,022		(640	)		85,741
Commercial mortgage-backed securities		244		-		(9)			235		1,827		3		(4	)		1,826
Trust preferred securities		978		-		(224)			754		977		-		(412	)		565
Other securities		3,610		15		(85)			3,540		1,610		-		(36	)		1,574
Total securities available for sale	$	86,140	$	2,588	$	(645)		$	88,083	$	106,434	$	2,095	$	(1,398	)	$	107,131
Held to maturity:
State and political subdivisions	$	2,298	$	147	$	-		$	2,445	$	2,297	$	-	$	(66	)	$	2,231
Residential mortgage-backed securities		7,669		404		(21)			8,052		14,722		444		(318	)		14,848
Commercial mortgage-backed securities		2,702		583		-			3,285		4,042		217		-			4,259
Trust preferred securities		-		-		-			-		50		-		(37	)		13
Total securities held to maturity	$	12,669	$	1,134	$	(21	)	$	13,782	$	21,111	$	661	$	(421	)	$	21,351

This table provides the remaining contractual maturities and yields of securities within the investment portfolios. The carrying value of securities at September 30, 2011 is primarily distributed by contractual maturity. Mortgage-backed securities and other securities, which may have principal prepayment provisions, are distributed based on contractual maturity. Expected maturities will differ materially from contractual maturities as a result of early prepayments and calls. The total weighted average yield excludes equity securities.

	Within one year					After one year through five years					After five years through ten years					After ten years					Total carrying value
(In thousands)	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
Available for sale at fair value:
US Government sponsored entities	$	-		-	%	$	1,858		1.50	%	$	3,091		2.62	%	$	2,451		3.33	%	$	7,400		2.58	%
State and political subdivisions		-		-			176		6.50			5,621		3.25			8,319		3.58			14,116		3.58
Residential mortgage-backed securities		-		-			460		3.66			1,851		2.41			59,727		3.49			62,038		3.52
Commercial mortgage-backed securities		-		-			-		-			-		-			235		6.88			235		6.88
Trust preferred securities		-		-			-		-			-		-			754		1.11			754		1.11
Other securities		-		-			-		-			1,946		5.00			1,594		3.37			3,540		4.26
Total securities available for sale	$	-		-	%	$	2,494		2.25	%	$	12,509		3.24	%	$	73,080		3.48	%	$	88,083		3.47	%
Held to maturity at cost:
State and political subdivisions	$	-		-	%	$	-		-	%	$	-		-	%	$	2,298		5.15	%	$	2,298		5.15	%
Residential mortgage-backed securities		-		-			302		4.22			2,349		4.79			5,018		4.57			7,669		4.84
Commercial mortgage-backed securities		-		-			-		-			-		-			2,702		5.40			2,702		5.40
Total securities held to maturity	$	-		-	%	$	302		4.22	%	$	2,349		4.79	%	$	10,018		4.93	%	$	12,669		5.01	%

The fair value of securities with unrealized losses by length of time that the individual securities have been in a continuous unrealized loss position at September 30, 2011 and December 31, 2010 are as follows:

	September 30, 2011
			Less than 12 months					12 months and greater					Total
(In thousands)	Total Number in a Loss Position		Estimated Fair Value		Unrealized Loss			Estimated Fair Value		Unrealized Loss			Estimated Fair Value		Unrealized Loss
Available for sale:
Residential mortgage-backed securities		10	$	7,875	$	(127	)	$	1,150	$	(200	)	$	9,025	$	(327	)
Commercial mortgage-backed securities		1		235		(9	)		-		-			235		(9	)
Trust preferred securities		1		-		-			754		(224	)		754		(224	)
Other securities		3		1,946		(54	)		529		(31	)		2,475		(85	)
Total temporarily impaired investments		15	$	10,056	$	(190	)	$	2,433	$	(455	)	$	12,489	$	(645	)
Held to maturity:
Residential mortgage-backed securities		1		-		-			649		(21	)		649		(21	)
Total temporarily impaired investments		1	$	-	$	-		$	649	$	(21	)	$	649	$	(21	)

	December 31, 2010
			Less than 12 months					12 months and greater					Total
(In thousands)	Total Number in a Loss Position		Estimated Fair Value		Unrealized Loss			Estimated Fair Value		Unrealized Loss			Estimated Fair Value		Unrealized Loss
Available for sale:
State and political subdivisions		31	$	9,051	$	(306	)	$	-	$	-		$	9,051	$	(306	)
Residential mortgage-backed securities		17		14,651		(422	)		3,547		(218	)		18,198		(640	)
Commercial mortgage-backed securities		1		-		-			1,516		(4	)		1,516		(4	)
Trust preferred securities		1		-		-			565		(412	)		565		(412	)
Other securities		4		-		-			1,074		(36	)		1,074		(36	)
Total temporarily impaired investments		54	$	23,702	$	(728	)	$	6,702	$	(670	)	$	30,404	$	(1,398	)
Held to maturity:
State and political subdivisions		4	$	2,231	$	(66	)	$	-	$	-		$	2,231	$	(66	)
Residential mortgage-backed securities		5		2,243		(75	)		2,651		(243	)		4,894		(318	)
Trust preferred securities		2		-		-			13		(37	)		13		(37	)
Total temporarily impaired investments		11	$	4,474	$	(141	)	$	2,664	$	(280	)	$	7,138	$	(421	)

Unrealized Losses

The unrealized losses in each of the categories presented in the tables above are discussed in the paragraphs that follow:

U.S. Government sponsored entities and state and political subdivision securities: There were no unrealized losses on investments in this type of security as of September 30, 2011.

Residential and commercial mortgage-backed securities: The unrealized losses on investments in mortgage-backed securities were caused by interest rate increases. The majority of contractual cash flows of these securities are guaranteed by Fannie Mae, Ginnie Mae and the Federal Home Loan Mortgage Corporation. It is expected that the securities would not be settled at a price significantly less than the par value of the investment. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity, the Company does not consider these investments to be other-than-temporarily impaired as of September 30, 2011.

Trust preferred securities: The unrealized losses on trust preferred securities were caused by an inactive trading market and changes in market credit spreads. At September 30, 2011, this category consisted of one single-issuer trust preferred security. The issuer of the trust preferred security is considered a well capitalized institution per regulatory standards and significantly strengthened its capital position. In addition, the issuer has ample liquidity, bolstered its allowance for loan losses, was profitable in 2010 and is projected to be profitable in 2011. The contractual terms do not allow the security to be settled at a price less than the par value. Because the Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, which may be at maturity, the Company does not consider this security to be other-than-temporarily impaired as of September 30, 2011.

Other securities: Included in this category are corporate debt securities, stock of other financial institutions, and Community Reinvestment Act ("CRA") investments. The unrealized losses on corporate debt securities are due to widening credit spreads, and the unrealized losses on the stock of other financial institutions and CRA investments are caused by decreases in the market prices of the shares. The Company has evaluated the prospects of the issuers and has forecasted a recovery period; therefore these investments are not considered other-than-temporarily impaired as of September 30, 2011.

Realized Gains and Losses and Other-Than-Temporary Impairment

Gross realized gains (losses) on securities and other-than-temporary impairment charges for the three and nine months ended September 30, 2011 and 2010 are detailed in the table below:

	For the three months ended September 30,					For the nine months ended September 30,
(In thousands)		2011			2010	2011			2010
Available for sale:
Realized gains	$	316		$	35	$	484		$	278
Realized losses		-			-		(13	)		(150	)
Other-than-temporary impairment charges		-			-		-			-
Total securities available for sale	$	316		$	35	$	471		$	128

Held to maturity:
Realized gains	$	-		$	-	$	-		$	4
Realized losses		(50	)		-		(118	)		(90	)
Other-than-temporary impairment charges		-			-		-			-
Total securities held to maturity	$	(50	)	$	-	$	(118	)	$	(86	)

Net gains on sales of securities and other-than-temporary impairment charges	$	266		$	35	$	353		$	42

The net realized gains and losses are included in noninterest income in the Consolidated Statements of Operations as net securities gains. For the three months and nine months ended September 30, 2011, there were gross realized gains of $316 thousand and $484 thousand, respectively and gross realized losses of $50 thousand and $131 thousand, respectively. This resulted in net realized gains of $266 thousand and $353 thousand for the three and nine months ended September 30, 2011, respectively. The net realized gains during 2011 are primarily attributed to the following:

·	The Company sold approximately $21.7 million in book value of mortgage-backed securities, resulting in pretax gains of approximately $484 thousand, partially offset by

·	Losses of $13 thousand on the sale of approximately $1.0 million in book value of five available for sale mortgage-backed securities, and

·	Losses of $118 thousand on the sale of held to maturity securities, primarily private label mortgage-backed securities. Although designated as held to maturity, these securities were sold due to the deterioration in the underlying credit, as evidenced by downgrades in their credit ratings.

For the three months and nine months ended September 30, 2010, there were gross realized gains of $35 thousand and $282 thousand, respectively. There were no gross realized losses during the three months ended September 30, 2010 and gross realized losses of $240 thousand during the nine months ended September 30, 2010. This resulted in net realized gains of $35 thousand and $42 thousand for the three and nine months ended September 30, 2010 , respectively. The net realized gains during 2010 are primarily attributed to the following:

·	The Company sold approximately $9.0 million in book value of mortgage-backed securities, resulting in pretax gains of approximately $272 thousand,

·	Two called structured agency securities with resulting gains of $6 thousand, and

·	One called municipal security with a resulting gain of $4 thousand, partially offset by

·	Losses of $150 thousand on the sale of two available for sale mortgage-backed securities, and

Losses of $90 thousand on the sale of five held to maturity tax-exempt municipal securities with a total book value of approximately $2.0 million. Although designated as held to maturity, these municipal securities were sold due to deterioration in the issuer's creditworthiness, as evidenced by downgrades in their credit ratings.

Pledged Securities

Securities with a carrying value of $66.4 million and $63.4 million at September 30, 2011 and December 31 2010, respectively, were pledged to secure Government deposits, secure other borrowings and for other purposes required or permitted by law. Included in these figures was $13.1 million and $2.9 million pledged against Government deposits at September 30, 2011 and December 31, 2010, respectively.