Securities

9 Months Ended

Sep. 30, 2012

Securities [Abstract]

Securities

Note C – Securities

(In Thousands)

The amortized cost and fair value of securities held to maturity were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2012
Obligations of other U.S. Government agencies and corporations	$	66,916	$	105	$	(57	)	$	66,964
Obligations of states and political subdivisions		232,223		17,540		(29	)		249,734
	$	299,139	$	17,645	$	(86	)	$	316,698
December 31, 2011
Obligations of other U.S. Government agencies and corporations	$	107,660	$	225	$	(74	)	$	107,811
Obligations of states and political subdivisions		224,750		12,083		(26	)		236,807
	$	332,410	$	12,308	$	(100	)	$	344,618

In light of the ongoing fiscal uncertainty in state and local governments, the Company analyzes its exposure to potential losses in its security portfolio on at least a quarterly basis. Management reviews the underlying credit rating and analyzes the financial condition of the respective issuers. Based on this analysis, the Company sold certain securities representing obligations of state and political subdivisions that were classified as held to maturity during 2011. The securities sold showed significant credit deterioration in that an analysis of the financial condition of the respective issuers showed the issuers were operating at net deficits with little to no financial cushion to offset future contingencies. These securities had a carrying value of $13,017, and the Company recognized a net gain of $16 on the sale during the nine months ended September 30, 2011. No securities classified as held to maturity were sold during the nine months ended September 30, 2012.

The amortized cost and fair value of securities available for sale were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2012
Obligations of other U.S. Government agencies and corporations	$	2,175	$	272	$	—		$	2,447
Residential mortgage backed securities:
Government agency mortgage backed securities		166,807		7,777		(2	)		174,582
Government agency collateralized mortgage obligations		114,811		2,515		(400	)		116,926
Commercial mortgage backed securities:
Government agency mortgage backed securities		37,064		3,062		(31	)		40,095
Government agency collateralized mortgage obligations		5,111		340		—			5,451
Trust preferred securities		29,459		—		(14,117	)		15,342
Other debt securities		22,871		841		(48	)		23,664
Other equity securities		2,355		678		—			3,033
	$	380,653	$	15,485	$	(14,598	)	$	381,540

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2011
Obligations of other U.S. Government agencies and corporations	$	17,193	$	202	$	—		$	17,395
Residential mortgage backed securities:
Government agency mortgage backed securities		224,242		6,455		(30	)		230,667
Government agency collateralized mortgage obligations		133,369		3,700		(82	)		136,987
Commercial mortgage backed securities:
Government agency mortgage backed securities		34,635		2,054		(20	)		36,669
Government agency collateralized mortgage obligations		5,170		146		—			5,316
Trust preferred securities		30,410		—		(17,625	)		12,785
Other debt securities		21,351		527		(3	)		21,875
Other equity securities		2,341		—		(104	)		2,237
	$	468,711	$	13,084	$	(17,864	)	$	463,931

Gross realized gains and gross realized losses on sales of securities available for sale for the three and nine months ended September 30, 2012 and 2011 were as follows:

	Three Months  Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012			2011
Gross gains on sales of securities available for sale	$	—	$	5,041	$	1,850		$	5,041
Gross losses on sales of securities available for sale		—		—		(77	)		—
Gain on sales of securities available for sale, net	$	—	$	5,041	$	1,773		$	5,041

At September 30, 2012 and December 31, 2011, securities with a carrying value of $335,799 and $305,746, respectively, were pledged to secure government, public and trust deposits. Securities with a carrying value of $10,326 and $20,206 were pledged as collateral for short-term borrowings at September 30, 2012 and December 31, 2011, respectively.

The amortized cost and fair value of securities at September 30, 2012 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because issuers may call or prepay obligations with or without call or prepayment penalties.

	Held to Maturity				Available for Sale
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within one year	$	9,835	$	9,905	$	—	$	—
Due after one year through five years		37,045		38,207		—		—
Due after five years through ten years		110,135		113,946		2,175		2,447
Due after ten years		142,124		154,640		29,459		15,342
Residential mortgage backed securities:
Government agency mortgage backed securities		—		—		166,807		174,582
Government agency collateralized mortgage obligations		—		—		114,811		116,926
Commercial mortgage backed securities:
Government agency mortgage backed securities		—		—		37,064		40,095
Government agency collateralized mortgage obligations		—		—		5,111		5,451
Other debt securities		—		—		22,871		23,664
Other equity securities		—		—		2,355		3,033
	$	299,139	$	316,698	$	380,653	$	381,540

The following table presents the age of gross unrealized losses and fair value by investment category:

	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Held to Maturity:
September 30, 2012
Obligations of other U.S. Government agencies and corporations	$	23,377	$	(57	)	$	—	$	—		$	23,377	$	(57	)
Obligations of states and political subdivisions		2,398		(28	)		126		(1	)		2,524		(29	)
Total	$	25,775	$	(85	)	$	126	$	(1	)	$	25,901	$	(86	)
December 31, 2011
Obligations of other U.S. Government agencies and corporations	$	19,919	$	(74	)	$	—	$	—		$	19,919	$	(74	)
Obligations of states and political subdivisions		4,301		(19	)		1,530		(7	)		5,831		(26	)
Total	$	24,220	$	(93	)	$	1,530	$	(7	)	$	25,750	$	(100	)
Available for Sale:
September 30, 2012
Obligations of other U.S. Government agencies and corporations	$	—	$	—		$	—	$	—		$	—	$	—
Residential mortgage backed securities:
Government agency mortgage backed securities		5,171		(2	)		—		—			5,171		(2	)
Government agency collateralized mortgage obligations		45,147		(382	)		1,991		(18	)		47,138		(400	)
Commercial mortgage backed securities:
Government agency mortgage backed securities		—		—			1,225		(31	)		1,225		(31	)
Government agency collateralized mortgage obligations		—		—			—		—			—		—
Trust preferred securities		—		—			15,342		(14,117	)		15,342		(14,117	)
Other debt securities		3,089		(47	)		2,210		(1	)		5,299		(48	)
Total	$	53,407	$	(431	)	$	20,768	$	(14,167	)	$	74,175	$	(14,598	)
December 31, 2011
Obligations of other U.S. Government agencies and corporations	$	—	$	—		$	—	$	—		$	—	$	—
Residential mortgage backed securities:
Government agency mortgage backed securities		4,446		(30	)		—		—			4,446		(30	)
Government agency collateralized mortgage obligations		16,806		(82	)		—		—			16,806		(82	)
Commercial mortgage backed securities:
Government agency mortgage backed securities		—		—			1,255		(20	)		1,255		(20	)
Government agency collateralized mortgage obligations		—		—			—		—			—		—
Trust preferred securities		—		—			12,785		(17,625	)		12,785		(17,625	)
Other debt securities		—		—			2,662		(3	)		2,662		(3	)
Other equity securities		2,237		(104	)		—		—			2,237		(104	)
Total	$	23,489	$	(216	)	$	16,702	$	(17,648	)	$	40,191	$	(17,864	)

The Company evaluates its investment portfolio for other-than-temporary-impairment (“OTTI”) on a quarterly basis. Impairment is assessed at the individual security level. The Company considers an investment security impaired if the fair value of the security is less than its cost or amortized cost basis. Impairment is considered to be other-than-temporary if the Company intends to sell the investment security or if the Company does not expect to recover the entire amortized cost basis of the security before the Company is required to sell the security or before the security’s maturity.

The Company holds investments in pooled trust preferred securities that had an amortized cost basis of $29,459 and $30,410 and a fair value of $15,342 and $12,785, at September 30, 2012 and December 31, 2011, respectively. The investments in pooled trust preferred securities consist of four securities representing interests in various tranches of trusts collateralized by debt issued by over 340 financial institutions. Management’s determination of the fair value of each of its holdings in pooled trust preferred securities is based on the current credit ratings, the known deferrals and defaults by the underlying issuing financial institutions and the degree to which future deferrals and defaults would be required to occur before the cash flow for the Company’s tranches is negatively impacted. In addition, management continually monitors key credit quality and capital ratios of the issuing institutions. This determination is further supported by quarterly valuations, which are performed by third parties, of each security obtained by the Company. 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 the investments’ amortized cost, which may be maturity. At September 30, 2012, management did not, and does not currently, believe such securities will be settled at a price less than the amortized cost of the investment, but the Company did conclude that it was probable that there had been an adverse change in estimated cash flows for all four trust preferred securities and recognized credit related impairment losses on two of the four securities (XIII and XXIV in the table below) in 2010 and the remaining two securities in 2011. No additional impairment was recognized during the three or nine months ended September 30, 2012.

However, based on the qualitative factors discussed above, each of the four pooled trust preferred securities was classified as a nonaccruing asset at September 30, 2012. Investment interest is recorded on the cash-basis method until qualifying for return to accrual status.

The following table provides information regarding the Company’s investments in pooled trust preferred securities at September 30, 2012:

Name	Single/ Pooled	Class/ Tranche	Amortized Cost		Fair Value		Unrealized Loss			Lowest Credit Rating		Issuers Currently in Deferral or Default
XIII	Pooled	B-2	$	1,216	$	1,011	$	(205	)		Ca		40	%
XXIII	Pooled	B-2		10,599		6,518		(4,081	)		Ca		22	%
XXIV	Pooled	B-2		12,076		5,176		(6,900	)		Ca		34	%
XXVI	Pooled	B-2		5,568		2,637		(2,931	)		Ca		32	%
			$	29,459	$	15,342	$	(14,117	)

The following table provides a summary of the cumulative credit related losses recognized in earnings for which a portion of OTTI has been recognized in other comprehensive income:

	2012			2011
Balance at January 1	$	(3,337	)	$	(3,075	)
Additions related to credit losses for which OTTI was not previously recognized		—			(262	)
Increases in credit loss for which OTTI was previously recognized		—			—
Balance at September 30	$	(3,337	)	$	(3,337	)