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Securities
 3 Months Ended
Mar. 31, 2012
Investments, Debt and Equity Securities [Abstract]  
Securities
Securities
 
 The amortized cost and fair value of securities are summarized in the following tables:

 
March 31, 2012
(in thousands)
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Available for Sale:
 
 
 
 
 
 
 
U.S. Government agency securities
$
10,000

 
$
—

 
$
(190
)
 
$
9,810

Residential mortgage-backed securities
62,290

 
454

 
(92
)
 
62,652

Agency collateralized mortgage obligations
491,602

 
11,908

 
(85
)
 
503,425

Private-label collateralized mortgage obligations
17,017

 
52

 
(705
)
 
16,364

Corporate debt securities
19,954

 
—

 
(575
)
 
19,379

Municipal securities
10,382

 
6

 
(87
)
 
10,301

Total
$
611,245

 
$
12,420

 
$
(1,734
)
 
$
621,931

Held to Maturity:
 

 
 

 
 

 
 

U.S. Government agency securities
$
120,991

 
$
179

 
$
(487
)
 
$
120,683

Residential mortgage-backed securities
35,097

 
2,687

 
—

 
37,784

Agency collateralized mortgage obligations
38,615

 
881

 
(3
)
 
39,493

Corporate debt securities
15,000

 
—

 
(141
)
 
14,859

Municipal securities
1,105

 
23

 
—

 
1,128

Total
$
210,808

 
$
3,770

 
$
(631
)
 
$
213,947


 
December 31, 2011
(in thousands)
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Available for Sale:
 
 
 
 
 
 
 
U.S. Government agency securities
$
22,500

 
$
58

 
$
—

 
$
22,558

Residential mortgage-backed securities
21,087

 
325

 
—

 
21,412

Agency collateralized mortgage obligations
519,167

 
9,171

 
(175
)
 
528,163

Private-label collateralized mortgage obligations
24,974

 
—

 
(1,968
)
 
23,006

Corporate debt securities
19,952

 
—

 
(1,632
)
 
18,320

Total
$
607,680

 
$
9,554

 
$
(3,775
)
 
$
613,459

Held to Maturity:
 

 
 

 
 

 
 

U.S. Government agency securities
$
97,750

 
$
88

 
$
—

 
$
97,838

Residential mortgage-backed securities
37,658

 
2,769

 
—

 
40,427

Agency collateralized mortgage obligations
45,122

 
840

 
(1
)
 
45,961

Corporate debt securities
15,000

 
—

 
(484
)
 
14,516

Municipal securities
1,105

 
10

 
—

 
1,115

Total
$
196,635

 
$
3,707

 
$
(485
)
 
$
199,857


 
The amortized cost and fair value of debt securities by contractual maturity at March 31, 2012 are shown in the following table. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations.
 
 
Available for Sale
 
Held to Maturity
(in thousands)
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Due in one year or less
$
—

 
$
—

 
$
—

 
$
—

Due after one year through five years
—

 
—

 
15,000

 
14,859

Due after five years through ten years
24,065

 
23,451

 
15,000

 
14,891

Due after ten years
16,271

 
16,039

 
107,096

 
106,920

 
40,336

 
39,490

 
137,096

 
136,670

Residential mortgage-backed securities
62,290

 
62,652

 
35,097

 
37,784

Agency collateralized mortgage obligations
491,602

 
503,425

 
38,615

 
39,493

Private-label collateralized mortgage obligations
17,017

 
16,364

 
—

 
—

Total
$
611,245

 
$
621,931

 
$
210,808

 
$
213,947


 
During the first quarter of 2012, the Company executed a portfolio strategy designed to remove some of the lower-yielding bonds from the investment portfolio and to capture value on accelerating prepayments. As part of this program, the Company sold twenty-one agency collateralized mortgage obligations (CMOs) and two private-label CMOs with a total fair market value of $209.7 million and realized a net pretax gain of $984,000. One of the bonds sold had been classified as held to maturity, however, its remaining par value was less than 15% of its originally purchased par value and, therefore, could be sold without tainting the remaining held to maturity (HTM) portfolio. The Company also had $110.3 million of agency debentures that were called by their issuing agency during the first quarter of 2012. To meet collateral needs, the proceeds were reinvested into similar callable debentures.

During the first quarter of 2011, the Company sold a total of 10 securities with a combined fair market value of $86.8 million and realized a net pretax gain of $34,000. All of the securities sold were agency CMOs and all had been classified as available for sale.

The Company does not maintain a trading portfolio and there were no transfers of securities between the AFS and HTM portfolios. The Company uses the specific identification method to record security sales.

At March 31, 2012, securities with a carrying value of $566.9 million were pledged to secure public deposits and for other purposes as required or permitted by law.
 
The following table summarizes the Company's gains and losses on the sales of debt securities and credit losses recognized for the OTTI of investments:

(in thousands)
Gross Realized Gains
 
Gross Realized (Losses)
 
OTTI Credit Losses
 
Net Gains (Losses)
Three Months Ended:
 
 
 
 
 
 
 
March 31, 2012
$
1,869

 
$
(885
)
 
$
(649
)
 
$
335

March 31, 2011
667

 
(633
)
 
—

 
34



In determining fair market values for its portfolio holdings, the Company receives information from a third party provider which management evaluates and corroborates using amounts from one of its securities brokers. Under the current guidance, these values are considered Level 2 inputs, based upon mathematically derived matrix pricing and observed data from similar assets. They are not Level 1 direct quotes, nor do they reflect Level 3 inputs that would be derived from internal analysis or judgment. As the Company does not manage a trading portfolio and typically only sells from its AFS portfolio in order to manage interest rate risk or credit exposure, direct quotes, or street bids, are warranted on an as-needed basis only.

The following table shows the fair value and gross unrealized losses associated with the Company's investment portfolio, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
 
 
March 31, 2012
 
Less than 12 months
12 months or more
Total
 (in thousands)
Fair Value
Unrealized
(Losses)
Fair Value
Unrealized
(Losses)
Fair Value
Unrealized
(Losses)
Available for Sale:
 
 
 
 
 
 
U.S. Government agency securities
$
9,810

$
(190
)
$
—

$
—

$
9,810

$
(190
)
Residential mortgage-backed securities
20,192

(92
)
—

—

20,192

(92
)
Agency CMOs
7,375

(85
)
—

—

7,375

(85
)
Private-label CMOs
4,287

(337
)
8,813

(368
)
13,100

(705
)
Corporate debt securities
19,379

(575
)
—

—

19,379

(575
)
Municipal securities
7,779

(87
)
—

—

7,779

(87
)
Total
$
68,822

$
(1,366
)
$
8,813

$
(368
)
$
77,635

$
(1,734
)
Held to Maturity:
 
 
 
 
 
 
U.S. Government agency securities
$
59,487

$
(487
)
$
—

$
—

$
59,487

$
(487
)
Agency CMOs
309

(3
)
—

—

309

(3
)
Corporate debt securities
14,859

(141
)
—

—

14,859

(141
)
Total
$
74,655

$
(631
)
$
—

$
—

$
74,655

$
(631
)

 
December 31, 2011
 
Less than 12 months
12 months or more
Total
 (in thousands)
Fair Value
Unrealized
(Losses)
Fair Value
Unrealized
(Losses)
Fair Value
Unrealized
(Losses)
Available for Sale:
 
 
 
 
 
 
Agency CMOs
$
49,793

$
(175
)
$
—

$
—

$
49,793

$
(175
)
Private-label CMOs
6,017

(268
)
16,989

(1,700
)
23,006

(1,968
)
Corporate debt securities
18,320

(1,632
)
—

—

18,320

(1,632
)
Total
$
74,130

$
(2,075
)
$
16,989

$
(1,700
)
$
91,119

$
(3,775
)
Held to Maturity:
 
 
 
 
 
 
Agency CMOs
$
1,312

$
(1
)
$
—

$
—

$
1,312

$
(1
)
Corporate debt securities
14,516

(484
)
—

—

14,516

(484
)
Total
$
15,828

$
(485
)
$
—

$
—

$
15,828

$
(485
)

 
The Company's investment securities portfolio consists primarily of U.S. Government agency securities, U.S. Government sponsored agency mortgage-backed obligations (MBSs), private-label CMOs, municipal bonds and corporate bonds of the financial sector. The Company considers securities of the U.S. Government sponsored agencies and the U.S. Government MBS/CMOs to have little credit risk because their principal and interest payments are backed by an agency of the U.S. Government.

The unrealized losses in the Company's investment portfolio at March 31, 2012 were associated with three distinct types of securities. The first type, those backed by the U.S. Government or one of its agencies, includes five government agency debentures and four government agency sponsored MBS/CMOs. Management believes that the unrealized losses on these investments were primarily caused by the movement of interest rates and notes the contractual cash flows of those investments are guaranteed by an agency of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company's investment. Secondly, the Company owns five investment-grade corporate bonds and ten investment-grade municipal bonds that were in an unrealized loss position as of March 31, 2012. Due to their structure and credit rating, the Company does not anticipate incurring any credit-related losses on these bonds and the full return of principal and income is expected. Because management believes the decline in fair value is primarily attributable to changes in interest rates and because the Company has the ability and intent to hold those investments until a recovery of fair value, which may be maturity, the Company does not consider any of these investments to be other-than-temporarily impaired at March 31, 2012.

The third type of security in the Company's investment portfolio with unrealized losses at March 31, 2012 were private-label CMOs. Private-label CMOs are not backed by the full faith and credit of the U.S. Government nor are their principal and interest payments guaranteed. Historically, most private-label CMOs have carried a AAA bond rating on the underlying issuer, however, the subprime mortgage problems and decline in the residential housing market in the U.S. in recent years have led to ratings downgrades and subsequent OTTI of many CMOs. As of March 31, 2012, Metro owned five such non-agency CMO securities in an unrealized loss position. In addition, Metro owned one private-label CMO that was in an unrealized gain position. The total carrying value of all six non-agency CMOs was $16.4 million at March 31, 2012. Management performs no less than quarterly assessments of these securities for OTTI to determine what, if any, portion of the impairment may be credit related. As part of this process, management asserts that (a) we do not have the intent to sell the securities and (b) it is more likely than not we will not be required to sell the securities before recovery of the Company's cost basis. This assertion is based, in part, upon the most recent liquidity analysis prepared for the Company's Asset/Liability Committee (ALCO) which indicates if the Company has sufficient excess funds to consider the potential purchase of investment securities and sufficient unused borrowing capacity available to meet any potential outflows. Furthermore, the Company knows of no contractual or regulatory obligations that would require these bonds to be sold.  
 
In order to bifurcate the impairment into its components, the Company uses the Bloomberg analytical service to analyze each individual security. The Company looks at the overall bond ratings as well as specific, underlying characteristics such as pool factor, weighted-average coupon, weighted-average maturity, weighted-average life, loan to value, delinquencies, credit score, prepayment speeds, geographic concentration, etc. Using reported data for prepayment speeds, default rates, loss severity rates and lag times, the Company analyzes each bond under a variety of scenarios. As the results may vary depending upon the historic time period analyzed, the Company uses this information for the purpose of managing the investment portfolio and its inherent risk. However, the Company reports it findings based upon the three month data points for constant prepayment rate (CPR) speed, default rate and loss severity as it believes this time point best captures both current and historic trends. For management purposes, the Company also analyzes each bond using an assumed, projected default rate based upon each pool's most recent level of 90-day delinquencies, bankruptcies and foreclosed real estate. This projected analysis also assumes loss severity percentages subjectively assigned to each pool based upon credit ratings.
 
When the analysis shows a bond to have no projected loss, there is considered to be no credit-related loss. When the analysis shows a bond to have a projected loss, a cash flow projection is created, including the projected loss, for the duration of the bond. This projection is then used to calculate the present value of the cash flows expected to be collected and compared to the amortized cost basis. The difference between these two figures is recognized as the amount of OTTI due to credit loss. The difference between the total impairment and this credit loss portion is determined to be the amount related to all other factors. The amount of impairment related to credit loss is to be recognized in current earnings while the amount of impairment related to all other factors is to be recognized in other comprehensive income.

Using this method, the Company determined that on March 31, 2012, it owned two private-label CMOs that had never had losses attributable to credit and four private-label CMOs that had losses attributable to credit at some point. This was due to a number of factors including the bonds' credit ratings and rising trends for delinquencies, bankruptcies and foreclosures on the underlying collateral. An analysis of all four bonds with previous credit losses indicated a loss position as of March 31, 2012, however, the present value of the cash flows for two of the four bonds was greater than the carrying value and, therefore, no further write-downs were required. For the other two bonds, the present value of their cash flows was less than their carrying value and, therefore, a write-down was required. In total, for the quarter ended March 31, 2012, the Company recognized $649,000 of losses related to credit issues on its private-label CMOs holdings and the Company did not recapture any of the previous write-downs.

During the quarter ended March 31, 2012, two private-label CMOs experienced actual principal losses for the first time and were also downgraded to payment default status. With this downgrade, the Company made the decision to sell one of the bonds with a loss of $583,000 realized on the sale. The second one was charged down to fair value with an OTTI charge of $582,000 during the quarter and will be sold when deemed appropriate by management. In addition, one private-label CMO that had experienced losses in a prior year attributable to credit but had never experienced an actual principal loss was sold during the quarter when its fair market value had recovered and a small gain was realized. A total of six private-label CMOs are still held in portfolio.

The table below rolls forward the cumulative life to date credit losses which have been recognized in earnings for the private-label CMOs previously mentioned for the three months ended March 31, 2012 and March 31, 2011:

 
Private-label CMOs
 
Available for Sale
(in thousands)
2012
2011
Cumulative OTTI credit losses at January 1,
$
2,949

$
2,625

Additions for which OTTI was not previously recognized
—

—

Additional increases for OTTI previously recognized when
  there is no intent to sell and no requirement to sell before
  recovery of amortized cost basis
649

—

Reduction due to credit impaired securities sold
(1,305
)
—

Cumulative OTTI credit losses recognized for securities still
  held at March 31,
$
2,293

$
2,625