Securities

6 Months Ended

Jun. 30, 2011

NOTE 3 — SECURITIES

The following table presents a summary of the cost and fair value of the Company’s investment securities.

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 for the periods below were as follows:


	June 30, 2011												December 31, 2010
			Gross		Unrealized			Other-Than-							Gross		Unrealized			Other-Than-
	Amortized		Unrealized		Losses			Temporary			Fair		Amortized		Unrealized		Losses			Temporary			Fair
	Cost		Gains		Other			Impairment			Value		Cost		Gains		Other			Impairment			Value
					(Dollars In Thousands)												(Dollars In Thousands)

U.S. Treasury Securities	$	—	$	—	$	—		$	—		$	—	$	715	$	2	$	—		$	—		$	717
Agency Mortgage-Backed Securities		235,088		16,288		(4	)		—			251,372		296,821		16,481		—			—			313,302
Agency Collateralized Mortgage Obligations		37,888		626		—			—			38,514		45,426		779		(70	)		—			46,135
Private Mortgage-Backed Securities (1) (2)		8,116				—			2			8,118		10,408		—		—			(154	)		10,254
Single Issuer Trust Preferred Securities Issued by Banks		5,000		—		(534	)		—			4,466		5,000		—		(779	)		—			4,221
Pooled Trust Preferred Securities Issued by Banks and Insurers(1)		8,521		—		(2,122	)		(2,974	)		3,425		8,550		—		(2,309	)		(3,413	)		2,828

TOTAL	$	294,613	$	16,914	$	(2,660	)	$	(2,972	)	$	305,895	$	366,920	$	17,262	$	(3,158	)	$	(3,567	)	$	377,457

The amortized cost, gross unrealized holding gains and losses, other-than-temporary impairment recorded in other comprehensive income, and fair value of securities held to maturity for the periods below were as follows:

	June 30, 2011												December 31, 2010
			Gross		Unrealized			Other-Than-							Gross		Unrealized			Other-Than-
	Amortized		Unrealized		Losses			Temporary			Fair		Amortized		Unrealized		Losses			Temporary			Fair
	Cost		Gains		Other			Impairment			Value		Cost		Gains		Other			Impairment			Value
					(Dollars In Thousands)												(Dollars In Thousands)
U.S. Treasury Securities	$	1,015	$	—	$	(18	)	$	—		$	997	$	—	$	—	$	—		$	—		$	—
Agency Mortgage-Backed Securities		128,122		2,215		(1,069	)		—			129,268		95,697		1,348		(1,778	)		—			95,267
Agency Collateralized Mortgage Obligations		84,150		1,105		(44	)		—			85,211		89,823		600		(1,691	)		—			88,732
State, County, and Municipal Securities		8,175		81		—			—			8,256		10,562		167		—			—			10,729
Single Issuer Trust Preferred Securities Issued by Banks		11,647		88		(54	)		—			11,681		6,650		19		(163	)		—			6,506

TOTAL	$	233,109	$	3,489	$	(1,185	)	$	—		$	235,413	$	202,732	$	2,134	$	(3,632	)	$	—		$	201,234


(1)		During the six months ended June 30, 2011 and the year ended December 31, 2010, the Company recorded gross changes on other-than-temporarily impaired (“OTTI”) securities of $419,000 and $497,000. Included in these amounts were losses of $595,000 and $831,000 which were reclassed to OCI as they were deemed to be non-credit related.

(2)		Included in the non-credit component of OTTI for this class of securities is an unrealized gain of $110,000, which resulted from the Company having previously recognized credit losses in excess of the unrealized losses in OCI. In such instances, credit losses recognized in earnings have been offset by an unrealized gain.

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 on available for sale securities for the periods indicated:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
	(Dollars in Thousands)
Gross Gains on Available for Sale Securities	$	723	$	481	$	723	$	481

A schedule of the contractual maturities of securities available for sale and securities held to maturity is presented below:


	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(Dollars in Thousands)				(Dollars in Thousands)
Due in One Year or Less	$	—	$	—	$	1,100	$	1,110
Due from One Year to Five Years		3,490		3,620		9,785		9,913
Due from Five to Ten Years		70,425		74,872		4,831		4,956
Due after Ten Years		220,698		227,403		217,393		219,434

TOTAL	$	294,613	$	305,895	$	233,109	$	235,413

The actual maturities of agency mortgage-backed securities, collateralized mortgage obligations, private mortgage-backed securities, and corporate debt securities will differ from the contractual maturities, due to the ability of the issuers to prepay underlying obligations. At June 30, 2011 and December 31, 2010, the Bank had $17.5 million and $24.3 million, respectively, of callable securities in its investment portfolio.

At June 30, 2011 and December 31, 2010 investment securities carried at $336.0 million and $350.3 million, respectively, were pledged to secure public deposits, assets sold under repurchase agreements, treasury tax and loan notes, letters of credit, and for other purposes.

At June 30, 2011 and December 31, 2010, 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 other-than-temporary impairment (“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 are 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:


			June 30, 2011
			Less than 12 months					12 months or longer					Total
			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of Securities	# of holdings		Value		Losses			Value		Losses			Value		Losses
			(Dollars In Thousands)
U.S. Treasury Securities		1	$	997	$	(18	)	$	—	$	—		$	997	$	(18	)
Agency Mortgage-Backed Securities		6		47,796		(1,073	)		—		—			47,796		(1,073	)
Agency Collateralized Mortgage Obligations		1		13,786		(44	)		—		—			13,786		(44	)
Single Issuer Trust Preferred Securities Issued by Banks and Insurers		2		5,050		(54	)		4,466		(534	)		9,516		(588	)
Pooled Trust Preferred Securities Issued by Banks and Insurers		2		—		—			2,530		(2,122	)		2,530		(2,122	)

TOTAL TEMPORARILY IMPAIRED SECURITIES		12	$	67,629	$	(1,189	)	$	6,996	$	(2,656	)	$	74,625	$	(3,845	)


			December 31, 2010
			Less than 12 months					12 months or longer					Total
			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of Securities	# of holdings		Value		Losses			Value		Losses			Value		Losses
			(Dollars In Thousands)
U.S. Treasury Securities		0	$	—	$	—		$	—	$	—		$	—	$	—
Agency Mortgage-Backed Securities		4		48,956		(1,778	)		—		—			48,956		(1,778	)
Agency Collateralized Mortgage Obligations		6		72,631		(1,761	)		—		—			72,631		(1,761	)
Single Issuer Trust Preferred Securities Issued by Banks and Insurers		2		4,950		(163	)		4,221		(779	)		9,171		(942	)
Pooled Trust Preferred Securities Issued by Banks and Insurers		2		—		—			2,364		(2,309	)		2,364		(2,309	)

TOTAL TEMPORARILY IMPAIRED SECURITIES		14	$	126,537	$	(3,702	)	$	6,585	$	(3,088	)	$	133,122	$	(6,790	)

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 was able to determine this 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 June 30, 2011:

	•		United States Treasury Securities: The unrealized loss on the Company’s investment in U.S. Treasury securities is attributable to changes in interest rates and not due to credit deterioration, as these securities are implicitly guaranteed by the U.S. Government or one of its agencies.

	•		Agency Mortgage-Backed Securities and Collateralized Mortgage Obligations: The unrealized loss on the Company’s investment in these securities is attributable to changes in interest rates and not due to credit deterioration, as these securities are implicitly guaranteed by the U.S. Government or one of its agencies.

	•		Single Issuer Trust Preferred Securities: This portfolio consists of two securities, both of which are below investment grade. The unrealized loss on these securities is attributable to the illiquid nature of the trust preferred market in the current economic environment. Management evaluates various financial metrics for each of the issuers, including capitalization rates.

•

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.

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 the securities possess characteristics which in the current economic environment could lead to further OTTI charges. The following tables summarize pertinent information as of June 30, 2011, that was considered by management in determining if OTTI existed:


																Total Cumulative
								Non-Credit					Total Cumulative			Other-Than-
								Related Other-					Credit Related			Temporary
			Amortized		Gross Unrealized			Than-Temporary			Fair		Other-Than-			impairment
	Class		Cost (1)		Gain/(Loss)			Impairment			Value		Temporary Impairment			to date
	(Dollars in Thousands)
Pooled Trust Preferred Securities
Pooled Trust Preferred Security A		C1	$	1,283	$	—		$	(1,094	)	$	189	$	(3,676	)	$	(4,770	)
Pooled Trust Preferred Security B		D		—		—			—			—		(3,481	)		(3,481	)
Pooled Trust Preferred Security C		C1		505		—			(440	)		65		(482	)		(922	)
Pooled Trust Preferred Security D		D		—		—			—			—		(990	)		(990	)
Pooled Trust Preferred Security E		C1		2,081		—			(1,440	)		641		(1,367	)		(2,807	)
Pooled Trust Preferred Security F		B		1,890		(1,198	)		—			692		—			—
Pooled Trust Preferred Security G		A1		2,762		(924	)		—			1,838		—			—

TOTAL POOLED TRUST PREFERRED SECURITIES			$	8,521	$	(2,122	)	$	(2,974	)	$	3,425	$	(9,996	)	$	(12,970	)


Private Mortgage-Backed Securities
Private Mortgage-Backed Securities — One		2A1	$	3,872	$	—		$	(108	)	$	3,764	$	(623	)	$	(731	)
Private Mortgage-Backed Securities — Two		A19		4,244		—			110			4,354		(85	)		25

TOTAL PRIVATE MORTGAGE-BACKED SECURITIES			$	8,116	$	—		$	2		$	8,118	$	(708	)	$	(706	)


TOTAL			$	16,637	$	(2,122	)	$	(2,972	)	$	11,543	$	(10,704	)	$	(13,676	)


(1)		For the securities deemed impaired, the amortized cost reflects previously recorded OTTI charges recognized in earnings.


			Number of Performing					Total Projected			Excess Subordination (After
			Banks and Insurance		Current			Defaults/Losses (as a			Taking into Account Best
			Cos. in Issuances		Deferrals/Defaults/Losses			% of Performing			Estimate of Future			Lowest credit
	Class		(Unique)		(As a % of Original Collateral)			Collateral)			Deferrals/Defaults/Losses) (1)			Ratings to date (2)
Pooled Trust Preferred Securities
Trust Preferred Security A		C1		59		37.29	%		25.54	%		0.00	%		C
Trust Preferred Security B		D		59		37.29	%		25.54	%		0.00	%		C
Trust Preferred Security C		C1		49		36.65	%		23.79	%		0.00	%		C
Trust Preferred Security D		D		49		36.65	%		23.79	%		0.00	%		C
Trust Preferred Security E		C1		51		27.74	%		18.17	%		0.00	%		C
Trust Preferred Security F		B		33		28.14	%		23.73	%		23.61	%	CC
Trust Preferred Security G		A1		33		28.14	%		23.73	%		47.72	%	CCC+

Private Mortgage-Backed Securities
Private Mortgage-Backed Securities — One		2A1		N/A		3.59	%		12.44	%		0.00	%		C
Private Mortgage-Backed Securities — Two		A19		N/A		2.10	%		4.94	%		0.00	%		B3


(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 credit related OTTI that the Company recorded through earnings for the periods indicated:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
	(Dollars in Thousands)
Credit Related OTTI	$	136	$	84	$	176	$	262

The following table shows the cumulative credit related component of OTTI.


For the Six Months Ended June 30, 2011
	Credit Related
	Component of
	Other-Than-
	Temporary
	Impairment
	(Dollars in Thousands)
Balance at Beginning of Period	$	(10,528	)
Add:
Incurred on Securities not Previously Impaired		—
Incurred on Securities Previously Impaired		(176	)
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	$	(10,704	)

- Definition

Tabular disclosure of marketable securities. This may consist of investments in certain debt and equity securities, short-term investments and other assets.

+ References+ Details