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Investment Securities Available for Sale and Other Investments | 6 Months Ended
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Jun. 30, 2011
Investment Securities Available for Sale and Other Investments [Abstract] |
Investment Securities Available for Sale and Other Investments |
2. | Investment Securities Available for Sale and Other Investments
Following is a comparison of the amortized cost and fair value of securities available-for-sale, as of June 30, 2011 and December 31, 2010:
|  |  |  |  | Gross |  |  | Gross |  |  | Fair Value |
(In thousands) |  | Amortized |  |  | Unrealized |  |  | Unrealized |  |  | (Carrying |
June 30, 2011: |  | Cost |  |  | Gains |  |  | Losses |  |  | Amount) |
U.S. Government agencies |  | $ | 32,580 |  |  | $ | 1,374 |  |  | $ | (1 | ) |  | $ | 33,953 |
U.S. Government agency CMO's |  |  | 6,027 |  |  |  | 514 |  |  |  | (2 | ) |  |  | 6,539 |
Residential mortgage obligations |  |  | 11,601 |  |  |  | 0 |  |  |  | (2,751 | ) |  |  | 8,850 |
|  | $ | 50,208 |  |  | $ | 1,888 |  |  | $ | (2,754 | ) |  | $ | 49,342 |
December 31, 2010: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government agencies |  | $ | 32,486 |  |  | $ | 1,303 |  |  | $ | (1 | ) |  | $ | 33,788 |
U.S. Government agency CMO's |  |  | 7,203 |  |  |  | 552 |  |  |  | 0 |  |  |  | 7,755 |
Residential mortgage obligations |  |  | 11,955 |  |  |  | 0 |  |  |  | (1,995 | ) |  |  | 9,960 |
|  | $ | 51,644 |  |  | $ | 1,855 |  |  | $ | (1,996 | ) |  | $ | 51,503 |
The amortized cost and fair value of securities available for sale at June 30, 2011, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because issuers have the right to call or prepay obligations with or without call or prepayment penalties. Contractual maturities on collateralized mortgage obligations cannot be anticipated due to allowed paydowns.
|  | June 30, 2011 |
|  |  |  |  | Fair Value |
(In thousands) |  | Amortized Cost |  |  | (Carrying Amount) |
Due in one year or less |  | $ | 6,512 |  |  | $ | 6,531 |
Due after one year through five years |  |  | 9,939 |  |  |  | 10,069 |
Due after five years through ten years |  |  | 2,536 |  |  |  | 2,707 |
Due after ten years |  |  | 13,593 |  |  |  | 14,646 |
Collateralized mortgage obligations |  |  | 17,628 |  |  |  | 15,389 |
|  | $ | 50,208 |  |  | $ | 49,342 |
There were no realized gains or realized losses on sales of available-for-sale securities during the six months ended June 30, 2011. There were realized gains of $518,000 and realized losses of $448,000 on sales of available-for-sale securities during the six months ended June 30, 2010. There were no other-than-temporary impairment losses on certain of the Company's residential mortgage obligations (private label collateralized mortgage obligations) for the six months ended June 30, 2011. There were other-than-temporary impairment losses on certain of the Company's residential mortgage obligations (private label collateralized mortgage obligations) totaling $702,000 for the six months ended June 30, 2010. Securities that have been impaired less than 12 months at June 30, 2011 are comprised of one U.S. government agency security with a weighted average life of 2.7 years and one collateralized mortgage obligation with a weighted average life of 0.3 years. As of June 30, 2011, there were three residential mortgage obligations with a total weighted average life of 6.3 years that have been impaired for twelve months or more. The following summarizes the total of impaired investment securities at June 30, 2011 (see discussion below for other than temporarily impaired securities included here):
|  | Less than 12 Months |  |  | 12 Months or More |  |  | Total |
(In thousands) |  | Fair Value |  |  |  |  |  | Fair Value |  |  |  |  |  | Fair Value |  |  |  |
|  | (Carrying |  |  | Unrealized |  |  | (Carrying |  |  | Unrealized |  |  | (Carrying |  |  | Unrealized |
Securities available for sale: |  | Amount) |  |  | Losses |  |  | Amount) |  |  | Losses |  |  | Amount) |  |  | Losses |
U.S. Government agencies |  | $ | 131 |  |  | $ | (1 | ) |  | $ | 0 |  |  | $ | 0 |  |  | $ | 131 |  |  | $ | (1 | )
U.S. Government agency CMO's |  |  | 203 |  |  |  | (2 | ) |  |  | 0 |  |  |  | 0 |  |  |  | 203 |  |  |  | (2 | )
Residential mortgage |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Obligations |  |  | 0 |  |  |  | 0 |  |  |  | 8,850 |  |  |  | (2,751 | ) |  |  | 8,850 |  |  |  | (2,751 | )
Total impaired securities |  | $ | 334 |  |  | $ | (3 | ) |  | $ | 8,850 |  |  | $ | (2,751 | ) |  | $ | 9,184 |  |  | $ | (2,754 | )
Securities that have been impaired less than 12 months at June 30, 2010 are comprised of one U.S. government agency security with a weighted average life of 3.3 years and three collateralized mortgage obligations with a weighted average life of 1.8 years. As of June 30, 2010, there were three residential mortgage obligations and one other investment security with a total weighted average life of 3.3 years that have been impaired for twelve months or more. The following summarizes impaired investment securities at June 30, 2010:
|  | Less than 12 Months |  |  | 12 Months or More |  |  | Total |
(In thousands) |  | Fair Value |  |  |  |  |  | Fair Value |  |  |  |  |  | Fair Value |  |  |  |
|  | (Carrying |  |  | Unrealized |  |  | (Carrying |  |  | Unrealized |  |  | (Carrying |  |  | Unrealized |
Securities available for sale: |  | Amount) |  |  | Losses |  |  | Amount) |  |  | Losses |  |  | Amount) |  |  | Losses |
U.S. Government agencies |  | $ | 138 |  |  | $ | (1 | ) |  | $ | 0 |  |  | $ | 0 |  |  | $ | 138 |  |  | $ | (1 | )
U.S. Government agency CMO's |  |  | 2,952 |  |  |  | (14 | ) |  |  | 0 |  |  |  | 0 |  |  |  | 2,952 |  |  |  | (14 | )
Residential mortgage obligations |  |  | 0 |  |  |  | 0 |  |  |  | 9,712 |  |  |  | (3,190 | ) |  |  | 9,712 |  |  |  | (3,190 | )
Obligations of state and political subdivisions |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Other investment securities |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Total impaired securities |  | $ | 3,090 |  |  | $ | (15 | ) |  | $ | 9,712 |  |  | $ | (3,190 | ) |  | $ | 12,802 |  |  | $ | (3,205 | )
At June 30, 2011 and December 31, 2010, available-for-sale securities with an amortized cost of approximately $38.4 million and $46.7 million (fair value of $40.2 million and $47.2 million) were pledged as collateral for FHLB borrowings, public funds, and treasury tax and loan balances. The Company evaluates investment securities for other-than-temporary impairment (“OTTI”) at least quarterly, 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 classified as available for sale or held-to-maturity are generally evaluated for OTTI under ASC Topic 320, “Investments – Debt and Equity Instruments.” Certain purchased beneficial interests, including non-agency mortgage-backed securities, asset-backed securities, and collateralized debt obligations, are evaluated under ASC Topic 325-40 “Beneficial Interest in Securitized Financial Assets.”) In the first segment, the Company considers many factors in determining OTTI, 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 Company 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 the Company at the time of the evaluation. The second segment of the portfolio uses the OTTI guidance that is specific to purchased beneficial interests including non-agency collateralized mortgage obligations. Under this 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 future cash flows. Other-than-temporary-impairment occurs when the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss. If an entity intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the other-than-temporary-impairment shall be recognized in earnings equal to the entire difference between the investment's amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the other-than-temporary-impairment shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total other-than-temporary-impairment related to the credit loss is recognized in earnings, and is determined based on the difference between the present value of cash flows expected to be collected and the current amortized cost of the security. The amount of the total other-than-temporary-impairment related to other factors shall be recognized in other comprehensive (loss) income, net of applicable taxes. The previous amortized cost basis less the other-than-temporary-impairment recognized in earnings shall become the new amortized cost basis of the investment. At June 30, 2011, the decline in market value for all but three (see below) of the impaired securities is attributable to changes in interest rates, and not credit quality. Because the Company does not have the intent to sell these impaired securities and it is not more likely than not it will be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2011. At June 30, 2011, the Company had three non-agency collateralized mortgage obligations which have been impaired more than twelve months. The three non-agency collateralized mortgage obligations had an aggregate fair value of $8.9 million and unrealized losses of approximately $2.8 million at June 30, 2011. All three non-agency mortgage-backed securities were rated less than high credit quality at June 30, 2011. The Company evaluated these three non-agency collateralized mortgage obligations for OTTI by comparing the present value of expected cash flows to previous estimates to determine whether there had been adverse changes in cash flows during the period. The OTTI evaluation was conducted utilizing the services of a third party specialist and consultant in MBS and CMO products. The cash flow assumptions used in the evaluation at June 30, 2011 utilized a discounted cash flow valuation technique using a “Liquidation Scenario” whereby loans are evaluated by delinquency and are assigned probability of default and loss factors deemed appropriate in the current economic environment. The liquidation scenarios assume that all loans 60 or more days past due are liquidated and losses are realized over a period of between six and twenty four months based upon current 3-month trailing loss severities obtained from financial data sources. As a result of the impairment evaluation, the Company determined that there had been adverse changes in cash flows in all three of the three non-agency collateralized mortgage obligations, and concluded that these three non-agency collateralized mortgage obligations were other-than-temporarily impaired. At June 30, 2011, the three CMO securities had cumulative other-than-temporary-impairment losses of $4.3 million, $2.8 million of which was recorded in other comprehensive loss. During the six months ended June 30, 2011, the company recorded no OTTI impairment expense on the three CMO securities. During the six months ended June 30, 2010, the company recorded OTTI impairment expense of $702,000 on the three CMO securities. These three non-agency collateralized mortgage obligations remained classified as available for sale at June 30, 2011. The following table details the three non-agency collateralized mortgage obligations with other-than-temporary-impairment, their credit rating at June 30, 2011, the related credit losses recognized in earnings during the quarter, and impairment losses in other comprehensive loss:
|  | RALI 2006- QS1G A10 |  |  | RALI 2006 QS8 A1 |  |  | CWALT 2007- 8CB A9 |  |  |  |
|  | Rated D |  |  | Rated D |  |  | Rated CCC |  |  | Total |
Amortized cost – before OTTI |  | $ | 4,285 |  |  | $ | 1,292 |  |  | $ | 7,531 |  |  | $ | 13,108 |
Credit loss – Quarter ended June 30, 2011 |  |  | (923 | ) |  |  | (261 | ) |  |  | (323 | ) |  |  | (1,507 | )
Other impairment (OCI) |  |  | (648 | ) |  |  | (206 | ) |  |  | (1,897 | ) |  |  | (2,751 | )
Carrying amount – June 30, 2011 |  | $ | 2,714 |  |  | $ | 825 |  |  | $ | 5,311 |  |  | $ | 8,850 |
Total impairment - June 30, 2011 |  | $ | (1,571 | ) |  | $ | (467 | ) |  | $ | (2,220 | ) |  | $ | (4,258 | )
The total other comprehensive loss (OCI) balance of $2.8 million in the above table is included in unrealized losses of 12 months or more at June 30, 2011. The following table summarizes amounts related to credit losses recognized in earnings for the six months and quarters ended June 30, 2011 and 2010.
|  | Three Months Ended |  |  | Three Months Ended |  |  | Six Months Ended |  |  | Six Months Ended |
(in thousands) |  | June 30, 2011 |  |  | June 30, 2010 |  |  | June 30, 2011 |  |  | June 30, 2010 |
Beginning balance - credit losses |  | $ | 1,631 |  |  | $ | 1,087 |  |  | $ | 1,795 |  |  | $ | 843 |
Additions: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Initial credit impairments |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Subsequent credit impairments |  |  | 0 |  |  |  | 458 |  |  |  | 0 |  |  |  | 702 |
Reductions: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
For securities sold or credit losses realized on principal payments |  |  | (124 | ) |  |  | (100 | ) |  |  | (288 | ) |  |  | (100 | )
Due to change in intent or requirement to sell |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
For increase expected in cash flows |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Ending balance - credit losses |  | $ | 1,507 |  |  | $ | 1,445 |  |  | $ | 1,507 |  |  | $ | 1,445 |

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- Definition Tabular disclosure of investments in certain debt and equity securities (and certain other trading assets) which include all debt and equity securities (other than those equity securities accounted for under the equity or cost methods of accounting) with readily determinable fair values. Other trading assets include assets that are carried on the balance sheet at fair value and held for trading purposes. A debt security represents a creditor relationship with an enterprise that is in the form of a security. Debt securities include, among other items, US Treasury securities, US government securities, municipal securities, corporate bonds, convertible debt, commercial paper, and all securitized debt instruments. An equity security represents an ownership interest in an enterprise or the right to acquire or dispose of an ownership interest in an enterprise at fixed or determinable prices. Equity securities include, among other things, common stock, certain preferred stock, warrant rights, call options, and put options, but do not include convertible debt. An entity may opt to provide the reader with additional narrative text to better understand the nature of investments in debt and equity securities (and other trading assets). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=6872113&loc=d3e27405-111563 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6379141&loc=d3e15032-111544 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Glossary Equity Security -URI http://asc.fasb.org/extlink&oid=6511694 -Topic 320 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6872113&loc=d3e27161-111563 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Glossary Debt Security -URI http://asc.fasb.org/extlink&oid=6509901 -Topic 320 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 115 -Paragraph 3, 19, 20, 21, 22, 137 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6872113&loc=d3e27232-111563 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6872113&loc=d3e27357-111563 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 320 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6957658&loc=d3e62557-112803 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=6872113&loc=d3e27290-111563 + Details
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