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SECURITIES

6 Months Ended

Jun. 30, 2011

Notes to Financial Statements [Abstract]

NOTE 5. SECURITIES

Information related to the fair value and amortized cost of securities available for sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) is provided in the tables below.

		Gross	Gross
	Fair	Unrealized	Unrealized	Amortized
	Value	Gain	Losses	Cost
June 30, 2011
U.S. Treasury securities	1,047	$ 43	$ 0	$ 1,004
U.S. Government sponsored agencies	5,086	49	0	5,037
Agency residential mortgage-backed securities	329,106	8,287	(206)	321,025
Non-agency residential mortgage-backed securities	37,898	298	(2,374)	39,974
State and municipal securities	73,818	2,824	(127)	71,121
Total	$ 446,955	$ 11,501	$ (2,707)	$ 438,161

December 31, 2010
U.S. Treasury securities	$ 1,036	$ 32	$ 0	$ 1,004
U.S. Government sponsored agencies	0	0	0	0
Agency residential mortgage-backed securities	308,851	10,422	(837)	299,266
Non-agency residential mortgage-backed securities	62,773	331	(6,136)	68,578
State and municipal securities	69,960	1,538	(637)	69,059
Total	$ 442,620	$ 12,323	$ (7,610)	$ 437,907

Information regarding the fair value and amortized cost of available for sale debt securities by maturity as of June 30, 2011 is presented below. Maturity information is based on contractual maturity for all securities other than mortgage-backed securities. Actual maturities of securities may differ from contractual maturities because borrowers may have the right to prepay the obligation without prepayment penalty.

	Fair	Amortized
	Value	Cost
Due in one year or less	$ 2,229	$ 2,207
Due after one year through five years	17,388	16,683
Due after five years through ten years	36,227	34,694
Due after ten years	24,107	23,578
	79,951	77,162
Mortgage-backed securities	367,004	360,999
Total debt securities	$ 446,955	$ 438,161

Information regarding security proceeds, gross gains and gross losses are presented below.

	Six months ended June 30,
	2011	2010
Sales of securities available for sale
Proceeds	$ 73,318	$ 0
Gross gains	4,005	0
Gross losses	(4,171)	0

	Three months ended June 30,
	2011	2010
Sales of securities available for sale
Proceeds	$ 4,471	$ 0
Gross gains	76	0
Gross losses	(44)	0

The Company sold 36 securities with a total book value of $73.5 million and a total fair value of $73.3 million during the first six months of 2011. The sales were related to a strategic realignment of the securities portfolio, and included six of the seven non-agency residential mortgage backed securities on which the Company had previously recognized other-than-temporary impairment. There were no securities sales during the first six months of 2010.

Purchase premiums or discounts are recognized in interest income using the interest method over the terms of the securities or over estimated lives for mortgage-backed securities. Gains and losses on sales are based on the amortized cost of the security sold and recorded on the trade date.

Securities with carrying values of $259.3 million and $258.8 million were pledged as of June 30, 2011 and 2010, as collateral for deposits of public funds, securities sold under agreements to repurchase, borrowings from the FHLB and for other purposes as permitted or required by law.

Information regarding securities with unrealized losses as of June 30, 2011 and December 31, 2010 is presented below. The tables distribute the securities between those with unrealized losses for less than twelve months and those with unrealized losses for twelve months or more.

	Less than 12 months		12 months or more		Total
	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
	Value	Losses	Value	Losses	Value	Losses
June 30, 2011

U.S. Treasury securities	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0
Agency residential mortgage-backed securities	36,533	162	4,893	44	41,426	206
Non-agency residential mortgage-backed securities	815	2	27,887	2,372	28,702	2,374
State and municipal securities	10,292	127	0	0	10,292	127
Total temporarily impaired	$ 47,640	$ 291	$ 32,780	$ 2,416	$ 80,420	$ 2,707

	Less than 12 months		12 months or more		Total
	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
	Value	Losses	Value	Losses	Value	Losses
December 31, 2010

U.S. Treasury securities	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0
Agency residential mortgage-backed securities	55,193	821	4,170	16	59,363	837
Non-agency residential mortgage-backed securities	1,607	2	50,786	6,134	52,393	6,136
State and municipal securities	15,811	577	422	60	16,233	637
Total temporarily impaired	$ 72,611	$ 1,400	$ 55,378	$ 6,210	$ 127,989	$ 7,610

The number of securities with unrealized losses as of June 30, 2011 and December 31, 2010 is presented below.

	Less than	12 months
	12 months	or more	Total
June 30, 2011

U.S. Treasury securities	0	0	0
Agency residential mortgage-backed securities	11	2	13
Non-agency residential mortgage-backed securities	1	9	10
State and municipal securities	21	0	21
Total temporarily impaired	33	11	44

December 31, 2010

U.S. Treasury securities	0	0	0
Agency residential mortgage-backed securities	13	1	14
Non-agency residential mortgage-backed securities	1	18	19
State and municipal securities	35	1	36
Total temporarily impaired	49	20	69

All of the following are considered to determine whether or not the impairment of these securities is other-than-temporary. Ninety-three percent of the securities are backed by the U.S. Government, government agencies, government sponsored agencies or are A rated or better, except for certain non-local municipal securities which are not rated. Mortgage-backed securities which are not issued by the U.S. Government or government sponsored agencies (non-agency residential mortgage-backed securities) met specific criteria set by the Asset Liability Management Committee at their time of purchase, including having the highest rating available by either Moody’s or S&P. None of the securities have call provisions (with the exception of the municipal securities) and payments as originally agreed have been received. For the government, government-sponsored agency and municipal securities, management did not have concerns of credit losses and there was nothing to indicate that full principal will not be received. Management considered the unrealized losses on these securities to be primarily interest rate driven and does not expect material losses given current market conditions unless the securities are sold, which at this time management does not have the intent to sell nor will it more likely than not be required to sell these securities before the recovery of their amortized cost basis.

As of June 30, 2011, the Company had $37.9 million of collateralized mortgage obligations which were not issued by the federal government or government sponsored agencies, but were rated AAA by S&P and/or Aaa by Moody’s at the time of purchase. At December 31, 2010, the Company had $62.8 million of these collateralized mortgage obligations. During the first quarter of 2011, the Company sold eight of the non-agency residential mortgage backed securities as part of a strategic realignment of the investment portfolio. The securities sold had a book value of $21.9 million and a fair value of $17.7 million. The sales included six of the seven non-agency mortgage backed securities on which the Company had previously recognized other-than-temporary impairment. Two of the 15 remaining non-agency residential mortgage backed securities were still rated AAA/Aaa as of June 30, 2011, but 13 were downgraded by S&P, Fitch and/or Moody’s, including 10 which were ranked below investment grade by one or more rating agencies. Of the five securities rated AAA/Aaa at December 31, 2010, three have been downgraded, but were still rated as investment grade. Of the 10 that were below AAA/Aaa at December 31, 2010, two incurred further downgrades.

For these non-agency residential mortgage-backed securities, additional analysis is performed to determine if the impairment is temporary or other-than-temporary in which case impairment would need to be recorded for these securities. The Company performs an independent analysis of the cash flows of the individual securities based upon assumptions as to collateral defaults, prepayment speeds, expected losses and the severity of potential losses. Based upon the initial review, securities may be identified for further analysis computing the net present value using an appropriate discount rate (the current accounting yield) and comparing it to the book value of the security to determine if there is any other-than-temporary impairment that must be recorded. Based on this analysis of the non-agency residential mortgage-backed securities, the Company recorded an other-than-temporary impairment of $0 and $121,000, respectively, relating to one security in the three-months and six-months ended June 30, 2011, which is equal to the credit loss, establishing a new, lower amortized cost basis. Because management did not have the intent to sell these securities nor did management believe that it was more likely than not they would be required to sell these securities before the recovery of their new, lower amortized cost basis, management did not consider the remaining unrealized losses of the investment securities to be other-than-temporarily impaired at June 30, 2011.

The following table provides information about debt securities for which only a credit loss was recognized in income and other losses are recorded in other comprehensive income. The table represents the three months and six months ended June 30, 2011 and 2010.

	Accumulated
Three Months Ended June 30, 2011	Credit Losses
Balance April 1, 2011	$ 194
Sales of securities for which other-than-temporary impairment losses were previously recognized	0
Additional increases to the amount of credit loss for which other-than-temporary impairment was previously recognized	0
Balance June 30, 2011	$ 194

	Accumulated
Three Months Ended June 30, 2010	Credit Losses
Balance April 1, 2010	$ 396
Additions related to other-than-temporary impairment losses not previously recognized	81
Balance June 30, 2010	$ 477

	Accumulated
Six Months Ended June 30, 2011	Credit Losses
Balance January 1, 2011	$ 1,812
Sales of securities for which other-than-temporary impairment losses were previously recognized	(1,739)
Additional increases to the amount of credit loss for which other-than-temporary impairment was previously recognized	121
Balance June 30, 2011	$ 194

	Accumulated
Six Months Ended June 30, 2010	Credit Losses
Balance January 1, 2010	$ 225
Additions related to other-than-temporary impairment losses not previously recognized	252
Balance June 30, 2010	$ 477

Information on securities with at least one rating below investment grade as of June 30, 2011 is presented below.

							6/30/2011	1-Month	3-Month	6-Month
		Other Than	June 30, 2011				Lowest	Constant	Constant	Constant
		Temporary	Par	Book	Market	Unrealized	Credit	Default	Default	Default	Credit
Description	CUSIP	Impairment	Value	Value	Value	Gain/(Loss)	Rating	Rate	Rate	Rate	Support
CWHL 2006-18 2A7	12543WAJ7	$ 0	$ 3,370	$ 3,305	$ 3,008	$ (297)	CC	0.00	1.45	3.85	3.72
CWALT 2005-46CB A1	12667G6U2	0	3,794	3,616	3,219	(397)	CC	0.60	1.51	1.87	3.86
CWALT 2005-J8 1A3	12667GJ20	0	5,425	5,202	4,762	(440)	Caa2	0.00	5.49	2.71	6.72
CHASE 2005-S3 A4	16162WNE5	0	823	818	815	(3)	B1	1.07	2.22	2.12	4.37
CHASE 2006-S3 1A5	16162XAE7	0	1,879	1,875	1,770	(105)	CC	8.99	5.28	5.46	3.20
CMSI 2007-6 1A5	173103AE2	0	2,942	2,940	2,861	(79)	B1	0.00	1.18	2.76	6.74
GSR 2006-10F 1A1	36266WAC6	0	4,388	4,082	3,843	(239)	CC	0.00	0.00	0.00	3.09
MALT 2004-6 7A1	576434SK1	0	3,262	3,241	3,295	54	BB	0.00	0.00	0.00	11.00
MANA 2007-F1 1A1	59023YAA2	0	2,732	2,679	2,266	(413)	D	0.00	0.00	2.52	0.00
RFMSI 2006-S5 A14	74957EAP2	194	2,958	2,715	2,352	(363)	CC	1.49	3.77	4.47	0.83
		$ 194	$ 31,573	$ 30,473	$ 28,191	$ (2,282)

All of these securities are super senior or senior tranche non-agency residential mortgage-backed securities. The credit support is the credit support percentage for a tranche from other subordinated tranches, which is the amount of principal in the subordinated tranches expressed as a percentage of the remaining principal in the super senior/senior tranche. The super senior/senior tranches receive the prepayments and the subordinate tranches absorb the losses. The super senior/senior tranches do not absorb losses until the subordinate tranches are gone.

The Company does not have a history of actively trading securities, but keeps the securities available for sale should liquidity or other needs develop that would warrant the sale of securities. While these securities are held in the available for sale portfolio, it is management’s current intent and ability to hold them until a recovery in fair value or maturity.

- Definition

This item represents the entire disclosure related to Investments in Certain Debt and Equity Securities (and certain other trading assets) which include all debt and equity securities (other than those equity securities accounted for under the equity or cost methods of accounting) with readily determinable fair values. Other trading assets include assets that are carried on the balance sheet at fair value and held for trading purposes. A debt security represents a creditor relationship with an enterprise that is in the form of a security. Debt securities include, among other items, US Treasury securities, US government securities, municipal securities, corporate bonds, convertible debt, commercial paper, and all securitized debt instruments. An equity security represents an ownership interest in an enterprise or the right to acquire or dispose of an ownership interest in an enterprise at fixed or determinable prices. Equity securities include, among other things, common stock, certain preferred stock, warrant rights, call options, and put options, but do not include convertible debt. An entity may opt to provide the reader with additional narrative text to better understand the nature of investments in debt and equity securities (and other trading assets).

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