Investment Securities

9 Months Ended

Sep. 30, 2011

Investment Securities [Abstract]

Investment Securities

Note 2: Investment Securities

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

(In thousands)	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
As of September 30, 2011
Available for Sale:
U.S. Treasury Obligations	$250	$1	$0	$251
U.S. Agency Obligations	79,953	871	19	80,805
Federal Home Loan Bank ("FHLB") Obligations	16,827	299	13	17,113
Agency Residential Real Estate Mortgage-backed Securities     ("Agency MBSs")	146,609	7,453	0	154,062
Agency Collateralized Mortgage Obligations ("Agency CMOs")	156,710	2,669	47	159,332
Non-agency Collateralized Mortgage Obligations ("Non-agency     CMOs")	5,573	2	506	5,069
Asset Backed Securities ("ABS")	1,313	60	65	1,308
Total Available for Sale	$407,235	$11,355	$650	$417,940
Held to Maturity:
Agency MBSs	$603	$68	$0	$671
Total Agency MBSs	$603	$68	$0	$671

(In thousands)	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
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 September 30, 2011 are $65 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 September 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 September 30, 2011
Available for Sale (at fair value):
U.S. Treasury Obligations	$251	$0	$0	$0	$251
U.S. Agency Obligations	3,034	12,606	53,931	11,234	80,805
FHLB Obligations	3,765	0	13,348	0	17,113
Agency MBSs	2	6,356	31,417	116,287	154,062
Agency CMOs	0	0	3,236	156,096	159,332
Non-agency CMOs	0	0	52	5,017	5,069
ABS	0	0	0	1,308	1,308
Total Available for Sale	$7,052	$18,962	$101,984	$289,942	$417,940
Held to Maturity:
Agency MBSs	$0	$184	$0	$419	$603
Total Agency MBSs	$0	$184	$0	$419	$603
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
ABS	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 $132.02 million for the first nine months of 2011.  Gross gains of $970 thousand and $1.19 million, and gross losses of $50 thousand and $141 thousand were realized from these sales for the three and nine months ended September 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 September 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 September 30, 2011
U.S. Agency Obligations	$5,532	$19	$0	$0	$5,532	$19
FHLB Obligations	5,071	13	0	0	5,071	13
Agency CMOs	19,800	17	3,418	30	23,218	47
Non-agency CMOs	0	0	5,017	506	5,017	506
ABSs	0	0	892	65	892	65
Total	$30,403	$49	$9,327	$601	$39,730	$650
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 September 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 three bonds, one with a balance less than $100 thousand and an insignificant unrealized gain. We performed no additional analysis on this bond. Management has performed analyses on the remaining two bonds. One of the bonds, with a book value of $3.68 million and a fair value of $3.28 million at September 30, 2011, is rated Baa3 by Moody's and was downgraded on October 5, 2011 to BBB by Fitch. 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 $1.84 million and a fair value of $1.74 million. This bond is rated CCC by Fitch and BBB- 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 and amount of a principal loss in the future. For both bonds the likelihood of a loss in excess of our book value was determined to be remote, and any loss produced will not have a material impact on our financial conditions or results of operations.

The ABS portfolio consists of two bonds, one of which, with a book value of $357 thousand and a current market value of $416 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 the 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 $956 thousand, and its current market value is $891 thousand. This is the only bond in our bond portfolio with subprime exposure. Principal payments received on the bond during 2011 totaled $179 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 September 30, 2011, our investment in FHLBB stock totaled $8.63 million. We received dividend income totaling $6 thousand and $19 thousand during the quarter and nine months ended September 30, 2011, respectively. We received no dividend income on FHLBB stock during 2010.

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.