Investment Securities

6 Months Ended

Jun. 30, 2011

Investment Securities

Investment Securities

Note 2: Investment Securities

Investments in securities are classified as available for sale or held to maturity as of June 30, 2011. The amortized cost and fair values of the securities classified as available for sale and held to maturity as of June 30, 2011 and December 31, 2010 are as follows:

(In thousands)	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
As of June 30, 2011
Available for Sale:
U.S. Treasury Obligations	$       250	$         0	$    0	$       250
U.S. Agency Obligations	87,907	564	61	88,410
Federal Home Loan Bank ("FHLB") Obligations	11,826	323	0	12,149
Residential Real Estate Mortgage-backed Securities ("Agency  MBSs")	176,548	6,998	11	183,535
Agency Collateralized Mortgage Obligations ("Agency CMOs")	111,472	2,245	37	113,680
Non-agency Collateralized Mortgage Obligations ("Non-  agency CMOs")	5,820	1	316	5,505
Asset Backed Securities ("ABSs")	1,357	48	55	1,350
Total Available for Sale	$395,180	$10,179	$480	$404,879
Held to Maturity:
Agency MBSs	651	74	0	725
Total Agency MBSs	$       651	$       74	$    0	$       725

As of December 31, 2010
Available for Sale:
U.S. Treasury Obligations	$       250	$       0	$       0	$       250
U.S. Agency Obligations	47,717	287	216	47,788
FHLB Obligations	11,211	253	7	11,457
Agency MBSs	169,396	6,136	625	174,907
Agency CMOs	222,435	2,289	456	224,268
Non-agency CMOs	6,114	2	264	5,852
ABS	1,492	0	52	1,440
Total Available for Sale	$458,615	$8,967	$1,620	$465,962
Held to Maturity:
Agency MBSs	794	88	0	882
Total Agency MBSs	$       794	$     88	$       0	$       882

Included in gross unrealized losses at June 30, 2011 are $55 thousand of non-credit related unrealized losses on other-than-temporarily impaired securities in the ABS portfolio, which are included in accumulated other comprehensive income, net of tax.

The contractual final maturity distribution of the debt securities classified as available for sale and held to maturity as of June 30, 2011 and December 31, 2010, are as follows:

(In thousands)	Within One Year	After One But Within Five Years	After Five But Within Ten Years	After Ten Years	Total
As of June 30, 2011
Available for Sale (at fair value):
U.S. Treasury Obligations	$       0	$     250	$           0	$           0	$       250
U.S. Agency Obligations	3,034	10,068	61,398	13,910	88,410
FHLB Obligations	3,936	0	8,213	0	12,149
Agency MBSs	217	7,059	35,493	140,766	183,535
Agency CMOs	0	0	6,117	107,563	113,680
Non-agency CMOs	0	0	54	5,451	5,505
ABSs	0	0	0	1,350	1,350
Total Available for Sale	$7,187	$17,377	$111,275	$269,040	$404,879
Held to Maturity:
Agency MBSs	0	213	0	438	651
Total Agency MBSs	$       0	$     213	$           0	$       438	$       651
As of December 31, 2010
Available for Sale (at fair value):
U.S. Treasury Obligations	$   250	$         0	$           0	$           0	$       250
U.S. Agency Obligations	0	9,042	30,902	7,844	47,788
FHLB Obligations	0	4,428	7,029	0	11,457
Agency MBSs	2,146	7,425	36,877	128,459	174,907
Agency CMOs	430	0	18,180	205,658	224,268
Non-agency CMOs	0	0	72	5,780	5,852
ABSs	0	0	0	1,440	1,440
Total Available for Sale	$2,826	$20,895	$  93,060	$349,181	$465,962
Held to Maturity:
Agency MBSs	3	192	85	514	794
Total Agency MBSs	$       3	$     192	$         85	$       514	$       794

Actual maturities will differ from contractual maturities because borrowers may have rights to call or prepay obligations. Maturities of Agency MBSs and Agency CMOs are based on final contractual maturities.

Proceeds from sales of available for sale debt securities were $77.03 million for the first six months of 2011. Gross gains of $204 thousand and $218 thousand and gross losses of $67 thousand and $91 thousand were realized from these sales for the three and six months ended June 30, 2011, respectively.

Gross unrealized losses on investment securities available for sale and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position, at June 30, 2011 and December 31, 2010, were as follows:

	Less than 12 months		12 months or more		Total
(In thousands)	Fair Value	Loss	Fair Value	Loss	Fair Value	Loss
As of June 30, 2011
U.S. Agency Obligations	$  14,769	$     61	$       0	$    0	$  14,769	$     61
FHLB Obligations	0	0	0	0	0	0
Agency MBSs	4,610	11	0	0	4,610	11
Agency CMOs	10,970	37	0	0	10,970	37
Non-agency CMOs	94	2	5,357	314	5,451	316
ABSs	0	0	945	55	945	55
Total	$  30,443	$   111	$6,302	$369	$  36,745	$   480
As of December 31, 2010
U.S. Agency Obligations	$  16,173	$   216	$       0	$    0	$  16,173	$   216
FHLB Obligations	4,989	7	0	0	4,989	7
Agency MBSs	61,276	625	0	0	61,276	625
Agency CMOs	86,542	456	0	0	86,542	456
Non-agency CMOs	96	2	5,684	262	5,780	264
ABSs	349	7	1,090	45	1,439	52
Total	$169,425	$1,313	$6,774	$307	$176,199	$1,620

There were no securities held to maturity with unrealized losses as of June 30, 2011 and December 31, 2010.

Unrealized losses on investment securities result from the cost basis of the security being higher than its current fair value. These discrepancies generally occur because of changes in interest rates since the time of purchase, or because the credit quality of the issuer or underlying collateral has deteriorated. We perform a quarterly analysis of each security in our portfolio to determine if impairment exists, and if it does, whether that impairment is other-than-temporary.

Agency MBSs and Agency CMOs consist of pools of residential mortgages which are guaranteed by the Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), or the Government National Mortgage Association ("GNMA") with various origination dates and maturities. Non-Agency CMOs and ABSs are tracked individually by our investment manager with updates on the performance of the underlying collateral provided at least quarterly. Additionally, our investment manager performs stress testing of individual bonds that experience greater levels of market volatility.

The non-Agency CMO portfolio consists of four bonds, two with balances less than $100 thousand and an insignificant unrealized loss. We performed no additional analysis on these bonds. Management has performed analyses on the remaining two bonds. One of the bonds, with a book value of $3.79 million and a fair value of $3.52 million at June 30, 2011, is rated AA by Fitch and Baa3 by Moody's. Delinquencies have been fairly low and prepayments have led to increased credit support. The bond is backed by a large pool of loans with a 2004 issue date, 60-plus day delinquencies have been moderate and steady over the life of the bond, credit scores are high and loan-to-value ratios ("LTVs") are low. The second bond has a book value of $1.88 million and a fair value of $1.84 million. This bond is rated CCC by Fitch and A- by S&P. Delinquencies on this bond have generally been fairly low, particularly within our tranche, and prepayments have led to increased credit support. A relatively small loan pool and high average loan size are mitigated by low 60-plus day delinquencies, high credit scores, low LTVs and a 2005 issue date. Our investment advisor has assisted Management in running various cash flow analyses on the bonds to determine the likelihood of a principal loss in the future. In all cases, the likelihood of a loss in excess of our book value was determined to be remote.

The ABS portfolio consists of two bonds, one of which, with a book value of $357 thousand and a current market value of $405 thousand, is in an unrealized gain position, and, additionally, carries an Agency guarantee. We have performed no further analysis on this bond. The second bond in the ABS portfolio has insurance backing from Ambac. However, because of Ambac's uncertain financial status, we place no reliance on the insurance wrap in its impairment analysis. The bond is rated CC by Standard & Poor's and Caa2 by Moody's. We previously recorded impairment charges on this bond totaling $122 thousand. The book value of the bond, net of the impairment charges, is $1.00 million, and its current market value is $945 thousand. This is the only bond in our bond portfolio with subprime exposure. Principal payments received on the bond during 2011 total $135 thousand. We have performed the same analysis on this bond as on our non-Agency CMOs discussed above and consider its additional impairment temporary.

As a member of the FHLB system, we are required to invest in stock of the FHLB of Boston (the "FHLBB") in an amount determined based on our borrowings from the FHLBB. At June 30, 2011, our investment in FHLBB stock totaled $8.63 million. We received dividend income totaling $6 thousand and $13 thousand during the quarter and six months ended June 30, 2011, respectively.

We do not intend to sell the investment securities that are in an unrealized loss position, and it is unlikely that we will be required to sell the investment securities before recovery of their amortized cost bases, which may be maturity.