SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY

9 Months Ended

Sep. 30, 2012

SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY

SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY

NOTE 5. SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY

The following is a summary of securities available for sale and held to maturity:

(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2012
Securities available for sale
Debt securities:
Municipal bonds and obligations	$	76,481	$	5,855	$	—		$	82,336
Government guaranteed residential mortgage-backed
securities	43,964		983		—			44,947
Government-sponsored residential mortgage-backed
securities	278,145		2,404		(537		)	280,012
Corporate bonds	9,997		22		(316		)	9,703
Trust preferred securities	19,979		1,101		(2,011		)	19,069
Other bonds and obligations	291		1		—			292
Total debt securities	428,857		10,366		(2,864		)	436,359
Equity securities:
Marketable equity securities	27,498		3,804		(217		)	31,085
Total securities available for sale	456,355		14,170		(3,081		)	467,444
Securities held to maturity
Municipal bonds and obligations	8,020		—		—			8,020
Government-sponsored residential mortgage-backed
securities	76		8		—			84
Tax advantaged economic development bonds	42,021		2,056		(328		)	43,749
Other bonds and obligations	1,039		—		—			1,039
Total securities held to maturity	51,156		2,064		(328		)	52,892
Total Securities	$	507,511	$	16,234	$	(3,409	)	$	520,336
December 31, 2011
Securities available for sale
Debt securities:
Municipal bonds and obligations	$	73,436	$	4,418	$	—		$	77,854
Government guaranteed residential mortgage-backed securities	44,051		1,045		—			45,096
Government-sponsored residential mortgage-backed securities	245,033		2,990		(412		)	247,611
Corporate bonds	9,996		—		(269		)	9,727
Trust preferred securities	20,064		343		(2,592		)	17,815
Other bonds and obligations	642		2		—			644
Total debt securities	393,222		8,798		(3,273		)	398,747
Equity securities:
Marketable equity securities	20,236		1,555		(782		)	21,009
Total securities available for sale	413,458		10,353		(4,055		)	419,756
Securities held to maturity
Municipal bonds and obligations	10,349		—		—			10,349
Government-sponsored residential mortgage-backed securities	79		4		—			83
Tax advantaged economic development bonds	47,869		1,479		—			49,348
Other bonds and obligations	615		—		—			615
Total securities held to maturity	58,912		1,483		—			60,395
Total	$	472,370	$	11,836	$	(4,055	)	$	480,151

The amortized cost and estimated fair value of available for sale (“AFS”) and held to maturity (“HTM”) securities, segregated by contractual maturity at September 30, 2012 are presented below.  Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.  Mortgage-backed securities are shown in total, as their maturities are highly variable.  Equity securities have no maturity and are also shown in total.

	Available for sale				Held to maturity
	Amortized		Fair		Amortized		Fair
(In thousands)	Cost		Value		Cost		Value
Within 1 year	$	—	$	—	$	4,913	$	4,913
Over 1 year to 5 years	9,722		9,579		3,532		3,596
Over 5 years to 10 years	16,844		17,613		24,541		25,806
Over 10 years	80,182		84,208		18,094		18,493
Total bonds and obligations	106,748		111,400		51,080		52,808
Marketable equity securities	27,498		31,085		—		—
Residential mortgage-backed securities	322,109		324,959		76		84
Total	$	456,355	$	467,444	$	51,156	$	52,892

Securities with unrealized losses, segregated by the duration of their continuous unrealized loss positions, are summarized as follows:

	Less Than Twelve Months				Over Twelve Months				Total
	Gross				Gross				Gross
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
(In thousands)	Losses		Value		Losses		Value		Losses		Value
September 30, 2012
Securities available for sale
Debt securities:
Government-sponsored residential mortgage-backed securities	$	421	$	79,986	$	116	$	17,196	$	537	$	97,182
Corporate bonds	—		—		316		6,684		316		6,684
Trust preferred securities	—		—		2,011		3,622		2,011		3,622
Total debt securities	421		79,986		2,443		27,502		2,864		107,488
Marketable equity securities	6		4,665		211		1,788		217		6,453
Total securities available for sale	427		84,651		2,654		29,290		3,081		113,941
Securities held to maturity
Tax advantaged economic development bonds	328		8,239		—		—		328		8,239
Total securities held to maturity	328		8,239		—		—		328		8,239
Total	$	755	$	92,890	$	2,654	$	29,290	$	3,409	$	122,180
December 31, 2011
Securities available for sale
Debt securities:
Government-sponsored residential mortgage-backed securities	$	376	$	76,326	$	36	$	5,766	$	412	$	82,092
Corporate bonds	224		6,776		45		2,951		269		9,727
Trust preferred securities	20		2,541		2,572		3,065		2,592		5,606
Total debt securities	620		85,643		2,653		11,782		3,273		97,425
Marketable equity securities	782		6,229		—		—		782		6,229
Total securities available for sale	$	1,402	$	91,872	$	2,653	$	11,782	$	4,055	$	103,654

Debt Securities

The Company expects to recover its amortized cost basis on all debt securities in its AFS and HTM portfolios. Furthermore, the Company does not intend to sell nor does it anticipate that it will be required to sell any of its securities in an unrealized loss position as of September 30, 2012, prior to this recovery. The Company’s ability and intent to hold these securities until recovery is supported by the Company’s strong capital and liquidity positions as well as its historically low portfolio turnover. The following summarizes, by investment security type, the basis for the conclusion that the debt securities in an unrealized loss position within the Company’s AFS and HTM portfolios were not other-than-temporarily impaired at September 30, 2012:

AFS residential mortgage-backed securities

At September 30, 2012, 18 out of a total of 166 securities in the Company’s portfolios of AFS residential mortgage-backed were in unrealized loss positions. Aggregate unrealized losses represented less than 1% of the amortized cost of securities in unrealized loss positions within the AFS portfolio. The Federal National Mortgage Association (“FNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”) and Government National Mortgage Association (“GNMA”) guarantee the contractual cash flows of all of the Company’s residential mortgage-backed securities. The securities are investment grade rated and there were no material underlying credit downgrades during the past quarter. All securities are considered performing.

AFS corporate bonds

At September 30, 2012, 2 out of a total of 3 securities in the Company’s portfolio of AFS corporate bonds were in an unrealized loss position. The aggregate unrealized loss represented 4.5% of the amortized cost of the securities. All 3 securities remain investment grade rated and the market value of the securities supports the Company’s amortized value. The securities are considered performing.

AFS trust preferred securities

At September 30, 2012, 3 out of a total of 6 securities in the Company’s portfolio of AFS trust preferred securities were in unrealized loss positions. Aggregate unrealized losses represented 36% of the amortized cost of securities in unrealized loss positions. The Company’s evaluation of the present value of expected cash flows on these securities supports its conclusions about the recoverability of the securities’ amortized cost bases.  4 of the 6 securities contain at least one below investment grade ratings.  Berkshire reviews the financial strength of all of the single issue trust issuers and has concluded that the amortized cost remains supported by the market value of these securities and they are considered performing.

At September 30, 2012, $1.8 million of the total unrealized losses was attributable to a $2.6 million investment in a Mezzanine Class B tranche of a $360 million pooled trust preferred security issued by banking and insurance entities. The Company evaluated the security, with a Level 3 fair value of $0.8 million, for potential other-than-temporary-impairment (“OTTI”) at September 30, 2012 and determined that OTTI was not evident based on both the Company’s ability and intent to hold the security until the recovery of its remaining amortized cost and the protection from credit loss afforded by $46 million in excess subordination above current and projected losses. The security is considered performing.

HTM tax advantaged economic development bonds

At September 30, 2012, 1 of the 8 securities in the Company’s portfolio of tax advantaged economic development bonds were in an unrealized loss position. Aggregate unrealized losses represented 3.8% of the amortized cost of securities in unrealized loss positions. The Company has the intent of maintaining these positions to the recovery of these securities. All securities are considered performing.

Marketable Equity Securities

In evaluating its marketable equity securities portfolio for OTTI, the Company considers its ability and intent to hold an equity security to recovery of its cost basis.  In addition, various other factors are considered, including the length of time and the extent to which the fair value has been less than cost, and the financial condition and near term prospects of the issuer. Any OTTI is recognized immediately through earnings.

At September 30, 2012, 3 out of a total of 22 securities in the Company’s portfolio of marketable equity securities were in an unrealized loss position. The unrealized loss represented 3.3% of the amortized cost of the securities. The Company has the ability and intent to hold the securities until a recovery of their cost bases and does not consider the securities other-than-temporarily impaired at September 30, 2012. As new information becomes available in future periods, changes to the Company’s assumptions may be warranted and could lead to a different conclusion regarding the OTTI of these securities.