Securities

9 Months Ended

Sep. 30, 2012

Investments, Debt and Equity Securities [Abstract]

Marketable Securities [Text Block]

2.   Securities

The fair value of available for sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
September 30, 2012:
Securities available for sale:
State and municipal	$	73,098	$	7,422	$	(8	)	$	80,512
U.S. Government sponsored entities and agencies		1,592		26		-			1,618
Residential mortgage-backed agencies issued by U.S. Government sponsored entities		163,254		3,598		(122	)		166,731
Collateralized debt obligations, including trust preferred securities		4,011		-		(3,074	)		936
Mutual funds		250		10		-			260
Total securities available for sale	$	242,205	$	11,056	$	(3,204	)	$	250,057
December 31, 2011:
Securities available for sale:
State and municipal	$	70,728	$	5,803	$	(4	)	$	76,527
Residential mortgage-backed agencies issued by U.S. Government sponsored entities		118,876		2,190		(39	)		121,027
Collateralized debt obligations, including trust preferred securities		4,069		-		(3,132	)		937
Mutual funds		250		5		-			255
Total securities available for sale	$	193,923	$	7,998	$	(3,175	)	$	198,746

Total other-than-temporary impairment recognized in accumulated other comprehensive income was $1.7 million and $1.6 million for securities at September 30, 2012 and December 31, 2011.

Sales of available for sale securities were as follows.

	Three Months Ended September 30				Nine Months Ended September 30
	2012		2011		2012		2011
	(In thousands)
Proceeds	$	3,518	$	17,803	$	43,765	$	62,941
Gross gains		250		552		1,415		1,605
Gross losses		-		-		-		-

The tax provision applicable to these realized gains amounted to $85,000 and $481,000 for the three and nine months ended September 30, 2012, respectively, and $188,000 and $546,000 for the three and nine months ended September 30, 2011, respectively.

The amortized cost and fair value of the contractual maturities of available for sale securities at September 30, 2012 were as follows. Actual maturities may differ from contractual maturities if the issuers have the right to call their obligations. Mortgage-backed agencies and mutual funds which do not have a single maturity date are shown separately.

	September 30, 2012
	Amortized Cost		Fair Value
	(In thousands)
Within one year	$	59	$	59
One to five years		2,434		2,567
Five to ten years		18,097		19,761
Beyond ten years		58,111		60,679
Residential mortgage-backed securities issued by U.S. Government sponsored entities		163,254		166,731
Mutual funds		250		260
Total	$	242,205	$	250,057

Securities with unrealized losses at September 30, 2012 and December 31, 2011, aggregated by investment category and length of time that individual securities have been in a continuous loss position are as follows:

	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
	(In thousands)
September 30, 2012
State and municipal	$	1,017	$	(8	)	$	-	$	-		$	1,017	$	(8	)
Residential mortgaged-backed securities issued by U.S. Government sponsored agencies		23,101		(122	)		-		-			23,101		(122	)
Collateralized debt obligations, including  trust preferred securities		-		-			936		(3,074	)		936		(3,074	)
Total temporarily impaired	$	24,118	$	(130	)	$	936	$	(3,074	)	$	25,054	$	(3,204	)

	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
	(In thousands)
December 31, 2011
State and municipal	$	561	$	(4	)	$	-	$	-		$	561	$	(4	)
Residential mortgaged-backed securities issued by U.S. Government sponsored agencies		26,297		(39	)		-		-			26,297		(39	)
Collateralized debt obligations, including trust preferred securities		-		-			937		(3,132	)		937		(3,132	)
Total temporarily impaired	$	26,858	$	(43	)	$	937	$	(3,132	)	$	27,795	$	(3,175	)

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The investment securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model. Investment securities are generally evaluated for OTTI under FASB ASC 320-10. However, certain purchased beneficial interests, including collateralized debt obligations that had credit ratings at the time of purchase of below AA are evaluated using the model outlined in FASB ASC 325-40.

In determining OTTI under the FASB ASC 320-10 model, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

The second segment of the portfolio uses the OTTI guidance provided by FASB ASC 325-40 that is specific to purchased beneficial interests that, on the purchase date, were rated below AA. Under the FASB ASC 325-40 model, the Company compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows. An OTTI is deemed to have occurred if there has been an adverse change in the remaining expected cash flows.

As of September 30, 2012, the Company’s security portfolio consisted of 286 securities, 12 of which were in an unrealized loss position. The majority of the unrealized losses are in the Company’s collateralized debt obligations, as discussed below:

Collateralized Debt Obligations

The Company’s unrealized losses on collateralized debt obligations relate to its investment in six pooled trust preferred securities.

Our analysis of six of these investments falls within the scope of FASB ASC 325-40 and includes $4.0 million amortized cost of pooled trust preferred securities (CDOs). See the table below for a detail of the CDOs (in thousands):

	Current Moody’s Rating	Par Value		Amortized Cost		Estimated Fair Value		Previously Recognized OTTI Related to Credit Loss, Pre-Tax		Current Period OTTI Related to Credit Loss, Pre-Tax
Security 1	CCC- (S&P)	$	2,000	$	2,000	$	565	$	-	$	-
Security 2	C		152		-		-		146		-
Security 3	Caa2		49		44		21		5		-
Security 4	Caa2		317		283		136		35		-
Security 5	Ca		1,556		842		107		637		-
Security 6	Ca		1,556		842		107		637		-
		$	5,630	$	4,011	$	936	$	1,460	$	-

The issuers in five of the six securities are banks and bank holding companies while one is comprised of insurance companies. The Company uses an OTTI evaluation model to evaluate the present value of expected cash flows. The OTTI model considers the structure and term of the CDO and the financial condition of the underlying issuers. Specifically, the model details interest rates, principal balances of note classes and underlying issuers, the timing and amount of interest and principal payments of the underlying issuers, and the allocation of the payments to the note classes. The current estimate of expected cash flows is based on the most recent trustee reports and any other relevant market information including announcements of interest payment deferrals or defaults of underlying trust preferred securities. Assumptions used in the model include expected future default rates and prepayments. To develop our assumptions we reviewed the underlying issuers and determined the specific default rate by reviewing the financial condition of each issuer and whether they were currently in deferral or default. We also estimate when the defaults will occur ranging from immediate to four years. We considered all relevant data in developing our assumptions, however, we specifically reviewed each issuer’s profitability, credit ratings, if available, credit ratios, and credit quality metrics for the loan portfolios (if a bank). For those issuers we identified at risk of default, we estimated the amount of loss, net of any anticipated recoveries, which ranged from 100% for those issuers already in default at the evaluation date to 5.00%. After four years we assume a 0.40% annual default rate until scheduled maturity of the underlying note. Additionally, we assumed that all bank and bank holding company issuers with total assets of greater than $15 billion would prepay their obligations before the phase-out period begins for inclusion in Tier 1 capital on January 1, 2013 in accordance with the Dodd-Frank Act. Upon completion of the analysis, our model indicated we did not have additional other-than-temporary impairment. At September 30, 2012 the six securities subject to FASB ASC 325-40 accounted for the $3.1 million of unrealized loss in the collateralized debt obligations category.

There were no credit losses recognized in earnings related to these securities for the three and nine month periods ended September 30, 2012 and 2011. Prior to 2011, the Company had recognized credit losses of $1.5 million.