Securities

The amortized cost and fair value of securities are summarized in the following tables:



	June 30, 2012
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale:
U.S. Government agency securities	$	10,000	$	1	$	—		$	10,001
Residential mortgage-backed securities	70,356		1,244		—			71,600
Agency collateralized mortgage obligations	468,575		9,151		(230		)	477,496
Private-label collateralized mortgage obligations	6,258		—		(254		)	6,004
Corporate debt securities	19,956		—		(690		)	19,266
Municipal securities	20,658		28		(113		)	20,573
Total	$	595,803	$	10,424	$	(1,287	)	$	604,940
Held to Maturity:
U.S. Government agency securities	$	110,982	$	782	$	(29	)	$	111,735
Residential mortgage-backed securities	29,351		2,301		—			31,652
Agency collateralized mortgage obligations	34,890		950		—			35,840
Corporate debt securities	15,000		—		(150		)	14,850
Municipal securities	1,105		27		—			1,132
Total	$	191,328	$	4,060	$	(179	)	$	195,209



	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 June 30, 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	$	—	$	—	$	10,000	$	9,950
Due after one year through five years	—		—		5,000		4,900
Due after five years through ten years	31,010		30,296		15,000		15,021
Due after ten years	19,604		19,544		97,087		97,846
	50,614		49,840		127,087		127,717
Residential mortgage-backed securities	70,356		71,600		29,351		31,652
Agency collateralized mortgage obligations	468,575		477,496		34,890		35,840
Private-label collateralized mortgage obligations	6,258		6,004		—		—
Total	$	595,803	$	604,940	$	191,328	$	195,209

During the second quarter of 2012, the Company sold four mortgage-backed securities (MBSs), six agency collateralized mortgage obligations (CMOs) and three private-label CMOs all with a total fair market value of $44.5 million and realized a net pretax gain of $12,000. Four of the bonds sold had been classified as held to maturity, however, each remaining par value was less than 15% of its originally purchased par value and, therefore, were sold without tainting the remaining held to maturity (HTM) portfolio. The Company also had $20.0 million of agency debentures that were called by their issuing agency during the second quarter of 2012.

During the second quarter of 2011, the Company sold a total of two securities with a combined fair market value of $38.5 million and realized a net pretax gain of $309,000. Both securities sold had been classified as available for sale.

During the first six months of 2012, the Company sold four MBSs, 27 agency CMOs and five private-label CMOs with a total fair market value of $254.1 million and realized a net pretax gain of $996,000. Five of the bonds sold had been classified as held to maturity, however, each remaining par value was less than 15% of its original purchased par value and, therefore, were sold without tainting the remaining HTM portfolio, Year-to-date, the Company has also had $130.3 million in a total of nine agency debenture that were called by their issuing agency.

During the first six months of 2011, the Company sold a total of 12 securities with a combined fair market value of $125.3 million. All of the securities were U.S. agency CMOs, had been classified as available for sale and had a combined amortized cost of $125.0 million. The Company realized net pretax gains of $343,000 on the combined sales.

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 June 30, 2012, securities with a carrying value of $573.6 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:
June 30, 2012	$	626	$	(614	)	$	—		$	12
June 30, 2011	309		—			(315		)	(6		)
Six Months Ended:
June 30, 2012	2,495		(1,499		)	(649		)	347
June 30, 2011	976		(633		)	(315		)	28

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:



	June 30, 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:
Agency CMOs	$	30,776	$	(230	)	$	—	$	—		$	30,776	$	(230	)
Private-label CMOs	—		—			6,004		(254		)	6,004		(254		)
Corporate debt securities	19,266		(690		)	—		—			19,266		(690		)
Municipal securities	13,241		(113		)	—		—			13,241		(113		)
Total	$	63,283	$	(1,033	)	$	6,004	$	(254	)	$	69,287	$	(1,287	)
Held to Maturity:
U.S. Government agency securities	$	9,956	$	(29	)	$	—	$	—		$	9,956	$	(29	)
Corporate debt securities	14,850		(150		)	—		—			14,850		(150		)
Total	$	24,806	$	(179	)	$	—	$	—		$	24,806	$	(179	)



	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 of U.S. Government agency securities, U.S. Government sponsored agency MBSs, agency CMOs, 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 June 30, 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 one government agency debenture and two government agency sponsored MBS/CMOs. Management believes that the unrealized losses on these investments were primarily caused by the movement of interest rates from the date of purchase 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 thirteen investment-grade municipal bonds that were in an unrealized loss position as of June 30, 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 June 30, 2012.

The third type of security in the Company's investment portfolio with unrealized losses at June 30, 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 June 30, 2012, Metro owned three such non-agency CMO securities in an unrealized loss position with a total carrying value of $6.0 million. 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 different 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.

When the analysis shows a bond to have no projected loss, there is considered to be no credit-related impairment. 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 June 30, 2012, it owned one private-label CMO that had never had losses attributable to credit and two that had losses attributable to credit at some historical point since Metro has owned the security. 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 the bonds indicated that two were in a loss position as of June 30, 2012, however, the present value of the cash flows for both bonds was greater than the carrying value and, therefore, no further write-downs were required. In total, for the quarter ended June 30, 2012, the Company had no losses related to credit impairment on its private-label CMOs holdings and the Company did not recapture any of the previous periods write-downs.

During the quarter ended June 30, 2012, one private-label CMO, that had previously been downgraded to payment default status, continued to experience actual principal losses and it was sold. In addition, another private-label CMO was projected to begin experiencing an actual loss of principal in the second quarter of 2012 as all support and mezzanine tranches were paid off and no tranches remained to absorb continuing losses. The sale of both bonds resulted in a realized pretax loss of $572,000. In both cases, it was predetermined that the deteriorating credit conditions were sufficient to permit the sales without tainting the Company's assertion to hold the remaining private-label CMOs with OTTI losses due to credit until recovery of their fair market value. In addition, one private-label CMO that had never experienced an OTTI loss due to credit was sold during the second quarter of 2012 at a small loss. A total of three private-label CMOs were still held in the Company's portfolio at June 30, 2012, one of which has never incurred an OTTI loss due to credit, and two bonds that have incurred OTTI losses due to credit and were still in an unrealized loss position at June 30, 2012.

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 and six months ended June 30, 2012 and June 30, 2011:



	Private-label CMOs
	Available for Sale
(in thousands)	2012			2011
Cumulative OTTI credit losses at April 1,	$	2,293		$	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	—			315
Reduction due to credit impaired securities sold	(2,041		)	—
Cumulative OTTI credit losses recognized for securities still held at June 30,	$	252		$	2,940



	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			315
Reduction due to credit impaired securities sold	(3,346		)	—
Cumulative OTTI credit losses recognized for securities still held at June 30,	$	252		$	2,940