SECURITIES

The following table presents a summary of the amortized cost, gross unrealized holding gains and losses, other-than-temporary impairment recorded in other comprehensive income and fair value of securities available for sale and securities held to maturity for the periods below:



	September 30, 2012												December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Unrealized Losses Other			Other-Than- Temporary Impairment			Fair Value		Amortized Cost		Gross Unrealized Gains		Unrealized Losses Other			Other-Than- Temporary Impairment			Fair Value
	(Dollars In Thousands)
AVAILABLE FOR SALE SECURITIES:
U.S. Government Agency Securities	$	20,055	$	852	$	—		$	—		$	20,907	$	—	$	—	$	—		$	—		$	—
Agency Mortgage-Backed Securities	196,930		14,833		(18		)	—			211,745		222,349		16,042		—			—			238,391
Agency Collateralized Mortgage Obligations	72,621		826		(75		)	—			73,372		52,927		874		—			—			53,801
Private Mortgage-Backed Securities	3,935		—		—			177			4,112		6,215		—		—			(105		)	6,110
Single Issuer Trust Preferred Securities Issued by Banks	—		—		—			—			—		5,000		—		(790		)	—			4,210
Pooled Trust Preferred Securities Issued by Banks and Insurers	8,451		—		(2,464		)	(2,935		)	3,052		8,505		—		(2,518		)	(3,167		)	2,820
Marketable Equity Securities	9,764		219		(15		)	—			9,968		—		—		—			—			—
TOTAL AVAILABLE FOR SALE SECURITIES	$	311,756	$	16,730	$	(2,572	)	$	(2,758	)	$	323,156	$	294,996	$	16,916	$	(3,308	)	$	(3,272	)	$	305,332
HELD TO MATURITY SECURITIES:
U.S. Treasury Securities	$	1,013	$	130	$	—		$	—		$	1,143	$	1,014	$	103	$	—		$	—		$	1,117
Agency Mortgage-Backed Securities	81,523		5,239		—			—			86,762		109,553		4,406		—			—			113,959
Agency Collateralized Mortgage Obligations	91,845		2,924		—			—			94,769		77,804		2,494		—			—			80,298
State, County, and Municipal Securities	915		14		—			—			929		3,576		34		—			—			3,610
Single Issuer Trust Preferred Securities Issued by Banks	6,538		63		—			—			6,601		8,000		15		(669		)	—			7,346
Corporate Debt Securities	5,008		242		—			—			5,250		5,009		155		—			—			5,164
TOTAL HELD TO MATURITY SECURITIES	$	186,842	$	8,612	$	—		$	—		$	195,454	$	204,956	$	7,207	$	(669	)	$	—		$	211,494
TOTAL	$	498,598	$	25,342	$	(2,572	)	$	(2,758	)	$	518,610	$	499,952	$	24,123	$	(3,977	)	$	(3,272	)	$	516,826

When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale. The following table shows the gross gains realized on available for sale securities for the periods indicated:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
	(Dollars in Thousands)
GROSS GAINS REALIZED ON AVAILABLE FOR SALE SECURITIES	$	—	$	—	$	—	$	723

The actual maturities of certain securities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. A schedule of the contractual maturities of securities available for sale and securities held to maturity as of September 30, 2012 is presented below:



	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in Thousands)
DUE IN ONE YEAR OR LESS	$	340	$	357	$	239	$	241
DUE AFTER ONE YEAR TO FIVE YEARS	1,414		1,521		6,548		6,877
DUE AFTER FIVE TO TEN YEARS	71,549		75,974		1,013		1,143
DUE AFTER TEN YEARS	228,689		235,336		179,042		187,193
TOTAL DEBT SECURITIES	$	301,992	$	313,188	$	186,842	$	195,454
MARKETABLE EQUITY SECURITIES	$	9,764	$	9,968	$	—	$	—
TOTAL	$	311,756	$	323,156	$	186,842	$	195,454

Inclusive in the table above is $10.5 million and $13.0 million, respectively, of callable securities in the Company’s investment portfolio at September 30, 2012 and December 31, 2011.

At September 30, 2012 and December 31, 2011, investment securities carried at $380.3 million and $389.7 million, respectively, were pledged to secure public deposits, assets sold under repurchase agreements, letters of credit, and for other purposes.

At September 30, 2012 and December 31, 2011, the Company had no investments in obligations of individual states, counties, or municipalities, which exceeded 10% of Stockholders’ Equity.

Other-Than-Temporary Impairment

The Company continually reviews investment securities for the existence of OTTI, taking into consideration current market conditions, the extent and nature of changes in fair value, issuer rating changes and trends, the credit worthiness of the obligor of the security, volatility of earnings, current analysts’ evaluations, the Company’s intent to sell the security, or whether it is more likely than not that the Company will be required to sell the debt security before its anticipated recovery, as well as other qualitative factors. The term “other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment.

The following tables show the gross unrealized losses and fair value of the Company’s investments in an unrealized loss position, which the Company has not deemed to be OTTI, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:



	September 30, 2012
		Less than 12 months					12 months or longer					Total
	# of holdings	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars In Thousands)
AGENCY MORTGAGE-BACKED SECURITIES	1	$	3,843	$	(18	)	$	—	$	—		$	3,843	$	(18	)
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS	1	9,888		(75		)	—		—			9,888		(75		)
POOLED TRUST PREFERRED SECURITIES ISSUED BY BANKS AND INSURERS	2	—		—			2,118		(2,464		)	2,118		(2,464		)
MARKETABLE EQUITY SECURITIES	11	531		(15		)	—		—			531		(15		)
TOTAL TEMPORARILY IMPAIRED SECURITIES	15	$	14,262	$	(108	)	$	2,118	$	(2,464	)	$	16,380	$	(2,572	)



	December 31, 2011
		Less than 12 months				12 months or longer					Total
	# of holdings	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars In Thousands)
SINGLE ISSUER TRUST PREFERRED SECURITIES ISSUED BY BANKS AND INSURERS	2	$	—	$	—	$	8,617	$	(1,459	)	$	8,617	$	(1,459	)
POOLED TRUST PREFERRED SECURITIES ISSUED BY BANKS AND INSURERS	2	—		—		2,117		(2,518		)	2,117		(2,518		)
TOTAL TEMPORARILY IMPAIRED SECURITIES	4	$	—	$	—	$	10,734	$	(3,977	)	$	10,734	$	(3,977	)

The Company does not intend to sell these investments and has determined based upon available evidence that it is more likely than not that the Company will not be required to sell the security before the recovery of its amortized cost basis. As a result, the Company does not consider these investments to be OTTI. The Company made this determination by reviewing various qualitative and quantitative factors regarding each investment category, such as current market conditions, extent and nature of changes in fair value, issuer rating changes and trends, volatility of earnings, and current analysts’ evaluations.

As a result of the Company’s review of these qualitative and quantitative factors, the causes of the impairments listed in the table above by category are as follows at September 30, 2012:

•

Agency Mortgage-Backed Securities and Collateralized Mortgage Obligations: This portfolio has contractual terms that generally do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. The decline in market value of these securities is attributable to changes in interest rates and not credit quality. Additionally, these securities are implicitly guaranteed by the U.S. Government or one of its agencies.

•

Pooled Trust Preferred Securities: This portfolio consists of two below investment grade securities of which one is performing while the other is deferring payments as contractually allowed. The unrealized loss on these securities is attributable to the illiquid nature of the trust preferred market and the significant risk premiums required in the current economic environment. Management evaluates collateral credit and instrument structure, including current and expected deferral and default rates and timing. In addition, discount rates are determined by evaluating comparable spreads observed currently in the market for similar instruments.

•

Marketable Equity Securities: This portfolio consists of mutual funds and other equity investments. During some periods, the mutual funds in the Company’s investment portfolio may have unrealized losses resulting from market fluctuations as well as the risk premium associated with that particular asset class. For example, emerging market equities tend to trade at a higher risk premium than U.S. government bonds and thus, will fluctuate to a greater degree on both the upside and the downside. In the context of a well-diversified portfolio, however, the correlation amongst the various asset classes represented by the funds serves to minimize downside risk. The Company evaluates each mutual fund in the portfolio regularly and measures performance on both an absolute and relative basis. A reasonable recovery period for positions with an unrealized loss is based on management’s assessment of general economic data, trends within a particular asset class, valuations, earnings forecasts and bond durations.

Management monitors the following issuances closely for impairment due to the history of OTTI losses recorded within these classes of securities. Management has determined that these securities possess characteristics which in the current economic environment could lead to further credit related OTTI charges. The following tables summarize pertinent information as of September 30, 2012, that was considered by management in determining if OTTI existed:



	Class	Amortized Cost (1)		Gross Unrealized Gain/(Loss)			Non-Credit Related Other- Than-Temporary Impairment			Fair Value		Total Cumulative Credit Related Other-Than- Temporary Impairment			Total Cumulative Other-Than- Temporary impairment to Date
	(Dollars in Thousands)
POOLED TRUST PREFERRED SECURITIES:
Pooled Trust Preferred Security A	C1	$	1,283	$	—		$	(1,040	)	$	243	$	(3,676	)	$	(4,716	)
Pooled Trust Preferred Security B	D	—		—			—			—		(3,481		)	(3,481		)
Pooled Trust Preferred Security C	C1	506		—			(361		)	145		(482		)	(843		)
Pooled Trust Preferred Security D	D	—		—			—			—		(990		)	(990		)
Pooled Trust Preferred Security E	C1	2,080		—			(1,534		)	546		(1,368		)	(2,902		)
Pooled Trust Preferred Security F	B	1,893		(1,306		)	—			587		—			—
Pooled Trust Preferred Security G	A1	2,689		(1,158		)	—			1,531		—			—
TOTAL POOLED TRUST PREFERRED SECURITIES		$	8,451	$	(2,464	)	$	(2,935	)	$	3,052	$	(9,997	)	$	(12,932	)
PRIVATE MORTGAGE BACKED SECURITIES:
Private Mortgage-Backed Securities—One	2A1	$	2,599	$	—		$	95		$	2,694	$	(765	)	$	(670	)
Private Mortgage-Backed Securities—Two	A19	1,336		—			82			1,418		(85		)	(3		)
TOTAL PRIVATE MORTGAGE-BACKED SECURITIES		$	3,935	$	—		$	177		$	4,112	$	(850	)	$	(673	)
TOTAL		$	12,386	$	(2,464	)	$	(2,758	)	$	7,164	$	(10,847	)	$	(13,605	)


(1)	The amortized cost reflects previously recorded OTTI charges recognized in earnings for the applicable securities.



	Class	Number of Performing Banks and Insurance Cos. in Issuances (Unique)	Current Deferrals/ Defaults/Losses (As a % of Original Collateral)	Total Projected Defaults/Losses (as a % of Performing Collateral)	Excess Subordination (After Taking into Account Best Estimate of Future Deferrals/ Defaults/Losses) (1)	Lowest credit Ratings to date (2)
POOLED TRUST PREFERRED SECURITIES:
Trust Preferred Security A	C1	56	33.25%	20.88%	—%	C (Fitch)
Trust Preferred Security B	D	56	33.25%	20.88%	—%	C (Fitch)
Trust Preferred Security C	C1	48	31.00%	18.89%	0.71%	C (Fitch)
Trust Preferred Security D	D	48	31.00%	18.89%	—%	C (Fitch)
Trust Preferred Security E	C1	47	27.54%	16.93%	2.54%	C (Fitch)
Trust Preferred Security F	B	34	26.61%	22.84%	28.51%	CC (Fitch)
Trust Preferred Security G	A1	34	26.61%	22.84%	52.56%	CCC+ (S&P)
PRIVATE MORTGAGE BACKED SECURITIES:
Private Mortgage-Backed Securities—One	2A1	N/A	5.59%	13.49%	—%	C (Fitch)
Private Mortgage-Backed Securities—Two	A19	N/A	3.42%	6.44%	—%	CC (Fitch)


(1)	Excess subordination represents the additional default/losses in excess of both current and projected defaults/losses that the security can absorb before the security experiences any credit impairment.


(2)	The Company reviewed credit ratings provided by S&P, Moody’s and Fitch in its evaluation of issuers.

Per review of the factors outlined above, seven of the securities shown in the table above were deemed to be OTTI. The remaining securities were not deemed to be OTTI as the Company does not intend to sell these investments and has determined, based upon available evidence, that it is more likely than not that the Company will not be required to sell the security before the recovery of its amortized cost basis.

The following table shows the cumulative credit related component of OTTI for the periods indicated:



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
	(Dollars in Thousands)
BALANCE AT BEGINNING OF PERIOD	$	(10,847	)	$	(10,704	)	$	(10,771	)	$	(10,528	)
ADD:
Incurred on Securities not Previously Impaired	—			—			—			—
Incurred on Securities Previously Impaired	—			(28		)	(76		)	(204		)
LESS:
Realized Gain/Loss on Sale of Securities	—			—			—			—
Reclassification Due to Changes in Company’s Intent	—			—			—			—
Increases in Cash Flow Expected to be Collected	—			—			—			—
BALANCE AT END OF PERIOD	$	(10,847	)	$	(10,732	)	$	(10,847	)	$	(10,732	)