INVESTMENT SECURITIES

9 Months Ended

Sep. 30, 2011

INVESTMENT SECURITIES

INVESTMENT SECURITIES

4.  INVESTMENT SECURITIES

At the time of purchase of a security, the Company designates the security as either available for sale or held to maturity, depending upon investment objectives, liquidity needs and intent. Securities held to maturity are stated at cost, adjusted for premium amortized or discount accreted, if any. The Company has the positive intent and ability to hold such securities to maturity.  Securities available for sale are stated at estimated fair value.  Unrealized gains and losses are excluded from income and reported net of tax as accumulated other comprehensive income (loss) as a separate component of stockholders’ equity until realized.  Interest earned on securities is included in interest income. Realized gains and losses on the sale of securities are reported in the consolidated statements of operations and determined using the adjusted cost of the specific security sold.

The amortized cost, gross unrealized gains and losses and estimated fair value of securities held to maturity and securities available for sale at September 30, 2011 and December 31, 2010 follow (in thousands).

			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value
September 30, 2011
Securities held to maturity:
Corporate securities	$	22,000	$	—	$	(2,470	)	$	19,530
Securities available for sale:
Obligations of states and political subdivisions	$	600	$	—	$	—		$	600
Government Agency securities	44,857		117		(52		)	44,922
Mortgage-backed securities and collateralized mortgage obligations - residential:
FHLMC	68,569		3,369		(30		)	71,908
FNMA	97,339		2,667		(103		)	99,903
GNMA	79,146		1,195		(181		)	80,160
Mortgage-backed securities and collateralized mortgage obligations - commercial:
GNMA	5,088		—		(13		)	5,075
Total securities available for sale	295,599		7,348		(379		)	302,568
Total securities	$	317,599	$	7,348	$	(2,849	)	$	322,098
December 31, 2010
Securities held to maturity:
Corporate securities	$	22,000	$	—	$	(110	)	$	21,890
Securities available for sale:
Obligations of states and political subdivisions	$	1,883	$	23	$	—		$	1,906
Government Agency securities	40,894		176		(514		)	40,556
Mortgage-backed securities and collateralized mortgage obligations - residential:
FHLMC	106,040		4,803		(95		)	110,748
FNMA	111,841		2,190		(414		)	113,617
GNMA	89,874		648		(1,050		)	89,472
Mortgage-backed securities and collateralized mortgage obligations - commercial:
GNMA	5,101		—		(242		)	4,859
Total securities available for sale	355,633		7,840		(2,315		)	361,158
Total securities	$	377,633	$	7,840	$	(2,425	)	$	383,048

The amortized cost and estimated fair value of securities held to maturity and securities available for sale at September 30, 2011 are shown below by expected maturity (in thousands). Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Estimated Fair Value
Securities held to maturity:
Due after one year through five years	$	8,000	$	6,990
Due after five years through ten years	14,000		12,540
Total securities held to maturity	22,000		19,530
Securities available for sale:
Due in one year or less	3,292		3,389
Due after one year through five years	29,181		29,143
Due after five years through ten years	4,000		3,994
Due after ten years	8,984		8,996
Subtotal	45,457		45,522
Mortgage-backed securities and collateralized mortgage obligations - residential	245,054		251,971
Mortgage-backed securities and collateralized mortgage obligations - commercial	5,088		5,075
Total securities available for sale	295,599		302,568
Total securities	$	317,599	$	322,098

The proceeds from sales of securities available for sale and the associated recognized gross gains, gross losses and taxes follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Proceeds	$	43,351	$	32,533	$	108,537	$	89,284
Gross gains	1,002		734		1,642		3,517
Gross losses	69		1		596		3
Tax provision, net	370		291		415		1,395

All of the Company’s securities with gross unrealized losses at both September 30, 2011 and December 31, 2010 had been in a continuous loss position for less than twelve months.

Unrealized losses have not been recognized in operations because the issuers’ bonds are of high credit quality, management does not intend to sell and it is not more likely than not that management would be required to sell the securities prior to recovery, and the decline in fair value is largely due to fluctuations in interest rates.

In the case of adjustable rate securities, the coupon rate resets periodically and is typically comprised of a base market index rate plus a spread.  The market value on these securities is primarily influenced by the length of time remaining before the coupon rate resets to market levels.  As an adjustable rate security approaches that reset date, it is likely that an unrealized loss position would dissipate.

The market value for fixed rate securities changes inversely with changes in interest rates.  When interest rates are falling, the market value of fixed rate securities will appreciate, whereas in a rising interest rate environment, the market value of fixed rate securities will depreciate.  The market value of fixed rate securities is also affected with the passage of time.  As a fixed rate security approaches its maturity date, the market value of the security typically approaches its par value.

Management evaluates securities for OTTI on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. In estimating OTTI, management considers: 1) the length of time and extent that fair value has been less than cost, 2) the financial condition and near term prospects of the issuer, 3) whether the market decline was affected by macroeconomic conditions and 4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. In analyzing an issuer’s financial condition, the Company’s management considers whether the securities are issued by the U.S. Government or its agencies, whether downgrades by bond rating agencies have occurred, industry analysts’ reports and the issuer’s financial statements and related disclosures. Although the Company’s securities held to maturity at September 30, 2011 had gross unrealized losses of $2.5 million, upon review of the considerations mentioned here no OTTI was warranted. Management believes that the decline in price in the held to maturity bonds was due to a variety of factors including, but not limited to, a general widening in corporate bond spreads and the small size of the issue. Management has no reason to believe that these investments will not recover their value as they approach maturity.