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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.