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Investment Securities
9 Months Ended
Sep. 30, 2011
Investments, Debt and Equity Securities [Abstract] 
Investment Securities
Note 2 – Investment Securities

The following table summarizes the amortized cost and estimated fair value of investment securities at September 30, 2011:

   
Amortized
  
Unrealized
  
Unrealized
  
Fair Value
 
   
Cost
  
Gains
  
Losses
  
(Estimated)
 
Securities available for sale
            
U.S. Treasury and agency
 $15,295,000  $1,199,000  $-  $16,494,000 
Mortgage-backed securities
  227,180,000   8,173,000   (315,000)  235,038,000 
State and political subdivisions
  70,124,000   3,936,000   (21,000)  74,039,000 
Corporate securities
  1,103,000   -   (324,000)  779,000 
Other equity securities
  534,000   33,000   (135,000)  432,000 
   $314,236,000  $13,341,000  $(795,000) $326,782,000 
Securities to be held to maturity
                
U.S. Treasury and agency
 $20,998,000  $180,000  $-  $21,178,000 
Mortgage-backed securities
  61,048,000   4,221,000   (19,000)  65,250,000 
State and political subdivisions
  47,353,000   3,397,000   (251,000)  50,499,000 
Corporate securities
  300,000   -   -   300,000 
   $129,699,000  $7,798,000  $(270,000) $137,227,000 
Non-marketable securities
                
Federal Home Loan Bank Stock
 $14,031,000  $-  $-  $14,031,000 
Federal Reserve Bank Stock
  1,412,000   -   -   1,412,000 
   $15,443,000  $-  $-  $15,443,000 







The following table summarizes the amortized cost and estimated fair value at December 31, 2010:

   
Amortized
  
Unrealized
  
Unrealized
  
Fair Value
 
   
Cost
  
Gains
  
Losses
  
(Estimated)
 
Securities available for sale
            
U.S. Treasury and agency
 $15,380,000  $665,000  $-  $16,045,000 
Mortgage-backed securities
  236,126,000   1,024,000   (2,736,000)  234,414,000 
State and political subdivisions
  43,404,000   171,000   (2,051,000)  41,524,000 
Corporate securities
  1,113,000   -   (247,000)  866,000 
Other equity securities
  371,000   19,000   (10,000)  380,000 
   $296,394,000  $1,879,000  $(5,044,000) $293,229,000 
Securities to be held to maturity
                
U.S. Treasury and agency
 $2,190,000  $35,000  $-  $2,225,000 
Mortgage-backed securities
  55,710,000   2,656,000   (144,000)  58,222,000 
State and political subdivisions
  49,330,000   1,102,000   (663,000)  49,769,000 
Corporate securities
  150,000   -   -   150,000 
   $107,380,000  $3,793,000  $(807,000) $110,366,000 
Non-marketable securities
                
Federal Home Loan Bank Stock
 $14,031,000  $-  $-  $14,031,000 
Federal Reserve Bank Stock
  1,412,000   -   -   1,412,000 
   $15,443,000  $-  $-  $15,443,000 

The following table summarizes the contractual maturities of investment securities at September 30, 2011:

   
Securities available for sale
  
Securities to be held to maturity
 
   
Amortized
Cost
  
Fair Value (Estimated)
  
Amortized
Cost
  
Fair Value (Estimated)
 
Due in 1 year or less
 $4,394,000  $4,450,000  $152,000  $153,000 
Due in 1 to 5 years
  11,188,000   11,748,000   14,848,000   15,415,000 
Due in 5 to 10 years
  34,872,000   36,698,000   22,158,000   23,608,000 
Due after 10 years
  263,248,000   273,454,000   92,541,000   98,051,000 
Equity securities
  534,000   432,000   -   - 
   $314,236,000  $326,782,000  $129,699,000  $137,227,000 

The following table summarizes the contractual maturities of investment securities at December 31, 2010:

   
Securities available for sale
  
Securities to be held to maturity
 
   
Amortized
Cost
  
Fair Value (Estimated)
  
Amortized
Cost
  
Fair Value (Estimated)
 
Due in 1 year or less
 $-  $-  $1,195,000  $1,203,000 
Due in 1 to 5 years
  2,950,000   3,099,000   5,475,000   5,749,000 
Due in 5 to 10 years
  2,385,000   2,404,000   13,838,000   14,435,000 
Due after 10 years
  290,688,000   287,346,000   86,872,000   88,979,000 
Equity securities
  371,000   380,000   -   - 
   $296,394,000  $293,229,000  $107,380,000  $110,366,000 

At September 30, 2011, securities with a fair value of $171.4 million were pledged to secure public deposits, repurchase agreements, and for other purposes as required by law. This compares to securities with a fair value of $113.0 million as of December 31, 2010 pledged for the same purposes.



Gains and losses on the sale of securities available for sale are computed by subtracting the amortized cost at the time of sale from the security’s selling price, net of accrued interest to be received. The following table shows securities gains and losses for the nine months ended September 30, 2011 and 2010:

   
For the nine months ended
September 30, 2011
  
For the nine months ended
September 30, 2010
 
Proceeds from sales
 $75,182,000  $202,000 
Gross gains
 $964,000  $2,000 
Gross losses
  (727,000)  - 
Net gain
 $237,000  $2,000 
Related income taxes
 $83,000  $1,000 

Management reviews securities with unrealized losses for other than temporary impairment. As of September 30, 2011, there were 29 securities with unrealized losses held in the Company’s portfolio. These securities were temporarily impaired as a result of changes in interest rates reducing their fair market value, of which 12 had been temporarily impaired for 12 months or more. At the present time, there have been no material changes in the credit quality of these securities resulting in other than temporary impairment, and in Management’s opinion, no additional write-down for other-than-temporary impairment is warranted. Information regarding securities temporarily impaired as of September 30, 2011 is summarized below:

   
Less than 12 months
  
12 months or more
  
Total
 
   
Fair
  
Unrealized
  
Fair
  
Unrealized
  
Fair
  
Unrealized
 
   
Value
  
Losses
  
Value
  
Losses
  
Value
  
Losses
 
U.S. Treasury and agency
 $-  $-  $-  $-  $-  $- 
Mortgage-backed securities
  11,669,000   (46,000)  6,984,000   (288,000)  18,653,000   (334,000)
State and political subdivisions
  1,748,000   (21,000)  1,569,000   (251,000)  3,317,000   (272,000)
Corporate securities
  -   -   779,000   (324,000)  779,000   (324,000)
Other equity securities
  151,000   (119,000)  36,000   (16,000)  187,000   (135,000)
   $13,568,000  $(186,000) $9,368,000  $(879,000) $22,936,000  $(1,065,000)

As of December 31, 2010, there were 136 securities with unrealized losses held in the Company’s portfolio. These securities were temporarily impaired as a result of changes in interest rates reducing their fair value, of which 13 had been temporarily impaired for 12 months or more. At the present time, there have been no material changes in the credit quality of these securities resulting in other than temporary impairment, and in Management’s opinion, no additional write-down for other-than-temporary impairment is warranted. Information regarding securities temporarily impaired as of December 31, 2010 is summarized below:

   
Less than 12 months
  
12 months or more
  
Total
 
   
Fair
  
Unrealized
  
Fair
  
Unrealized
  
Fair
  
Unrealized
 
   
Value
  
Losses
  
Value
  
Losses
  
Value
  
Losses
 
U.S. Treasury and agency
 $-  $-  $-  $-  $-  $- 
Mortgage-backed securities
  160,767,000   (2,654,000)  5,348,000   (226,000)  166,115,000   (2,880,000)
State and political subdivisions
  44,513,000   (2,307,000)  1,355,000   (407,000)  45,868,000   (2,714,000)
Corporate securities
  -   -   866,000   (247,000)  866,000   (247,000)
Other equity securities
  -   -   56,000   (10,000)  56,000   (10,000)
   $205,280,000  $(4,961,000) $7,625,000  $(890,000) $212,905,000  $(5,851,000)

The Bank is a member of the Federal Home Loan Bank (“FHLB”) of Boston. The FHLB is a cooperatively owned wholesale bank for housing and finance in the six New England States. Its mission is to support the residential mortgage and community-development lending activities of its members, which include over 450 financial institutions across New England. As a requirement of membership in the FHLB, the Bank must own a minimum required amount



of FHLB stock, calculated periodically based primarily on its level of borrowings from the FHLB. The Bank uses the FHLB for much of its wholesale funding needs. As of September 30, 2011 and December 31, 2010, the Bank’s investment in FHLB stock totaled $14.0 million.
FHLB stock is a non-marketable equity security and therefore is reported at cost, which equals par value. Shares held in excess of the minimum required amount are generally redeemable at par value. However, in the first quarter of 2009 the FHLB announced a moratorium on such redemptions in order to preserve its capital in response to current market conditions and declining retained earnings. The minimum required shares are redeemable, subject to certain limitations, five years following termination of FHLB membership. The Bank has no intention of terminating its FHLB membership.
In each of the first, second and third quarters of 2011, FHLB’s board of directors declared a dividend equal to an annual yield of 0.30%. FHLB’s board of directors anticipates that it will continue to declare modest cash dividends through 2011, but cautioned that adverse events such as a negative trend in credit losses on the FHLB’s private-label mortgage-backed securities or mortgage portfolio, a meaningful decline in income, or regulatory disapproval could lead to reconsideration of this plan.
The Company periodically evaluates its investment in FHLB stock for impairment based on, among other things, the capital adequacy of the FHLB and its overall financial condition. No impairment losses have been recorded through September 30, 2011. The Bank will continue to monitor its investment in FHLB stock.