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SECURITIES
 12 Months Ended
Dec. 31, 2012
Securities [Abstract]  
SECURITIES

NOTE 2 - 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) at December 31 is provided in the tables below.

 

          Gross     Gross        
    Fair     Unrealized     Unrealized     Amortized  
    Value     Gain     Losses     Cost  
  (in thousands)  
2012                                
U.S. Treasury securities   $ 1,037     $ 35     $ 0     $ 1,002  
U.S. government sponsored agencies     5,304       278       0       5,026  
Agency residential mortgage-backed securities     365,644       7,813       (1,495 )     359,326  
Non-agency residential mortgage-backed securities     6,453       242       0       6,211  
State and municipal securities     88,583       5,509       (189 )     83,263  
Total   $ 467,021     $ 13,877     $ (1,684 )   $ 454,828  
                                 
2011                                
U.S. Treasury securities   $ 1,055     $ 52     $ 0     $ 1,003  
U.S. government sponsored agencies     5,277       244       0       5,033  
Agency residential mortgage-backed securities     350,102       8,989       (923 )     342,036  
Non-agency residential mortgage-backed securities     32,207       191       (2,225 )     34,241  
State and municipal securities     78,750       5,292       (9 )     73,467  
Total   $ 467,391     $ 14,768     $ (3,157 )   $ 455,780  

 

Total other-than-temporary impairment recognized in accumulated other comprehensive income was $0 and $213,000 for securities available for sale at December 31, 2012 and 2011.

 

Information regarding the fair value and amortized cost of available for sale debt securities by maturity as of December 31, 2012 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.

 

    Amortized     Fair  
    Cost     Value  
    (in thousands)  
Due in one year or less   $ 2,221     $ 2,213  
Due after one year through five years     24,636       26,233  
Due after five years through ten years     36,310       39,017  
Due after ten years     26,124       27,461  
      89,291       94,924  
Mortgage-backed securities     365,537       372,097  
Total debt securities   $ 454,828     $ 467,021  

 

Security proceeds, gross gains and gross losses for 2012, 2011 and 2010 were as follows:

 

    2012     2011     2010  
          (in thousands)        
Sales of securities available for sale                        
Proceeds   $ 27,855     $ 73,318     $ 0  
Gross gains     824       3,997       0  
Gross losses     1,203       4,171       0  

 

Security proceeds for 2012 and 2011 are net of other-than-temporary impairment previously recognized on several non-agency mortgage-backed securities sold.

  

The Company sold twelve securities with a total book value of $28.2 million and a total fair value of $27.9 million during 2012. The sales included nine non-agency residential mortgage-backed securities, including all five on which the Company had previously recognized other-than-temporary impairment. The remaining gains during 2012 were from calls. The Company sold 36 securities with a total book value of $73.5 million and a total fair value of $73.3 million during 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. The remaining gains in 2011 were from calls or maturities. There were no security sales in 2010. All of the gains and losses in 2010 were from calls.

 

Securities with carrying values of $193.7 million and $247.7 million were pledged as of December 31, 2012 and 2011, 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 December 31, 2012 and 2011 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  
  (in thousands)  
2012                                                
                                                 
Agency residential mortgage-backed securities   $ 92,974     $ (1,066 )   $ 20,422     $ (429 )   $ 113,396     $ (1,495 )
State and municipal securities     10,791       (188 )     50       (1 )     10,841       (189 )
Total temporarily impaired   $ 103,765     $ (1,254 )   $ 20,472     $ (430 )   $ 124,237     $ (1,684 )
                                                 
2011                                                
                                                 
Agency residential mortgage-backed securities   $ 74,463     $ (860 )   $ 4,813     $ (63 )   $ 79,276     $ (923 )
Non-agency residential mortgage-backed securities     3,379       (4 )     23,885       (2,221 )     27,264       (2,225 )
State and municipal securities     341       (2 )     1,003       (7 )     1,344       (9 )
Total temporarily impaired   $ 78,183     $ (866 )   $ 29,701     $ (2,291 )   $ 107,884     $ (3,157 )

 

The number of securities with unrealized losses as of December 31, 2012 and 2011 is presented below.

 

    Less than     12 months        
    12 months     or more     Total  
2012                        
                         
Agency residential mortgage-backed securities     29       9       38  
State and municipal securities     29       1       30  
Total temporarily impaired     58       10       68  

 

    Less than     12 months        
    12 months     or more     Total  
2011                        
                         
Agency residential mortgage-backed securities     21       1       22  
Non-agency residential mortgage-backed securities     2       9       11  
State and municipal securities     3       2       5  
Total temporarily impaired     26       12       38  

 

All of the following are considered to determine whether or not the impairment of these securities is other-than-temporary. Ninety-nine 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 or 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, S&P or Fitch. None of the securities have call provisions (with the exception of the municipal securities) and all payments as originally agreed are being received on their original terms. 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. However, at this time management does not have the intent to sell and it is more likely than not that it will not be required to sell these securities before the recovery of their amortized cost basis.

 

As of December 31, 2012, the Company had $6.5 million of non-agency residential mortgage-backed securities which were not issued by the U.S. government or government sponsored agencies, but which were rated AAA by S&P or Fitch and/or Aaa by Moody’s at the time of purchase. As of December 31, 2011, the Company had $32.2 million of non-agency residential mortgage-backed securities which were not issued by the federal government or government sponsored agencies, but which were rated AAA by S&P and/or Aaa by Moody’s at the time of purchase. During the third quarter of 2012, the Company sold nine of the non-agency mortgage-backed securities as part of a strategic realignment of the investment portfolio. The securities sold had a book value of $20.7 million and a fair value of $19.5 million. The sales included all five of the securities on which the Company had previously recognized other-than-temporary impairment. One of the non-agency residential mortgage-backed securities owned at December 31, 2011 paid off in May 2012. None of the remaining five non-agency residential mortgage-backed securities were still rated AAA/Aaa as of December 31, 2012 by at least one of the rating agencies and one had been downgraded to below investment grade by at least one of those rating agencies. Five of the fifteen remaining non-agency residential mortgage-backed securities were still rated AAA/Aaa as of December 31, 2011 by at least one of the rating agencies, but the other ten had been downgraded to below investment grade by at least one rating agency.

 

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 $1.0 million relating to four securities in the year ended December 31, 2012, which is equal to the credit loss, establishing a new, lower amortized cost basis. All of the securities on which the Company had recognized other-than-temporary impairment were sold during the third quarter of 2012. None of the five remaining non-agency mortgage-backed securities had any unrealized losses or other-than-temporary impairment at December 31, 2012.

 

The following table provides information about debt securities for which only a credit loss was recognized in income and other losses were recorded in other comprehensive income.

 

    2012     2011  
    (in thousands)  
Balance January 1,   $ 359     $ 1,812  
Additions related to other-than-temporary impairment losses not previously recognized     779       42  
Additional increases to the amount of credit loss for which other-than-temporary impairment was previously recognized     247       244  
Reductions for previous credit losses realized on securities sold during the year     (1,385 )     (1,739 )
Balance December 31,   $ 0     $ 359  

 

Information on securities with at least one rating below investment grade as of December 31, 2012 is presented below.

 

                                      12/31/2012   1-Month     3-Month     6-Month        
        Other Than     December 31, 2012     Lowest   Constant     Constant     Constant        
        Temporary     Par     Amortized     Fair     Unrealized     Credit   Default     Default     Default     Credit  
Description   CUSIP   Impairment     Value     Cost     Value     Gain/(Loss)     Rating   Rate     Rate     Rate     Support  
      (in thousands)        
RALI 2004-QS7 A3   76110HTX7   $ 0     $ 2,908     $ 2,891     $ 2,979     $ 88     BB+     5.67       5.46       3.38       10.34  

 

Information on securities with at least one rating below investment grade as of December 31, 2011 is presented below.

 

                                                               
                                      12/31/2011   1-Month     3-Month     6-Month        
        Other Than     December 31, 2011     Lowest   Constant     Constant     Constant        
        Temporary     Par     Amortized     Fair     Unrealized     Credit   Default     Default     Default     Credit  
Description   CUSIP   Impairment     Value     Cost     Value     Gain/(Loss)     Rating   Rate     Rate     Rate     Support  
      (in thousands)  
CWHL 2006-18 2A7   12543WAJ7   $ 0     $ 2,815     $ 2,761     $ 2,450     $ (311 )   C     12.89       8.16       4.06       2.89  
CWALT 2005-46CB A1   12667G6U2     42       3,530       3,323       2,747       (576 )   CC     5.42       3.95       3.16       3.01  
CWALT 2005-J8 1A3   12667GJ20     0       5,043       4,835       4,560       (275 )   CC     7.9       8.6       5.04       6.2  
CHASE 2005-S3 A4   16162WNE5     0       333       331       330       (1 )   B1     0       0       2.43       4.02  
CHASE 2006-S3 1A5   16162XAE7     0       1,281       1,279       1,199       (80 )   C     0.84       1.2       2.73       2.2  
CMSI 2007-61A5   173103AE2     0       2,523       2,521       2,473       (48 )   B1     5.29       3.04       2.69       6.68  
GSR 2006-10F 1A1   36266WAC6     0       3,626       3,374       3,164       (210 )   C     0       0       1.13       2.17  
MALT 2004-6 7 A1   576434SK1     0       3,072       3,052       3,048       (4 )   B1     0       0       0       11.3  
MANA 2007-F1 1A1   59023YAA2     0       2,168       2,126       1,745       (381 )   D     0       0       0       0  
RFMSI 2006-S5 A14   74957EAP2     317       2,707       2,332       2,029       (303 )   D     6.03       4.98       5.45       0  
                                                                                 
        $ 359     $ 27,098     $ 25,934     $ 23,745     $ (2,189 )                                    

 

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.