This excerpt taken from the EBTC 10-Q filed Nov 9, 2007.
At both September 30, 2007 and December 31, 2006, all investment securities (other than FHLB stock) were classified as available for sale and carried at fair value. As of September 30, 2007, the carrying amount of the investment portfolio increased $15.9 million compared to December 31, 2006. The fair market value of the investment portfolio represented 14% of total assets at September 30, 2007 as compared to 13% at December 31, 2006.
During the nine months ended September 30, 2007, the company sold $5.9 million of investments, primarily comprised of equity securities, based on management's decision to take advantage of certain investment opportunities and to reallocate funds within the equity portfolio. In addition, during this period, the company received $13.7 million in principal paydowns, calls and maturities on the bond portfolio. The proceeds generated by both portfolios were reinvested during the period and, along with additional funds, were utilized to fund total purchases of $34.8 million.
The net unrealized gain on the portfolio at September 30, 2007 was $517 thousand compared to a net unrealized loss of $163 thousand at December 31, 2006. The net unrealized gain or loss in the company's fixed income portfolio fluctuates as interest rates rise and fall. Due to the fixed rate nature of this portfolio, as rates fall the value of the portfolio rises, and as rates rise, the value of the portfolio declines. The unrealized gains or loss on fixed income investments will also decline as the securities approach maturity. The net unrealized gain or loss on equity securities will change based on changes in the market value of the individual securities and mutual funds in the portfolio. Unrealized gains or losses will only be recognized in the statements of income if the securities are sold. However, if an unrealized loss on a fixed income or equity security is deemed to be other-than-temporary, the company marks the investment down to its carrying value through a charge to earnings.
The following table summarizes the fair market value of investments by certain categories at the dates indicated and the percentage of each category to total investments:
From time to time the company may pledge investments from the portfolio as collateral for various municipal deposit accounts, repurchase agreements and treasury, tax and loan deposits. The fair value of securities pledged as collateral was $24.7 million and $27.1 million at September 30, 2007 and December 31, 2006 respectively. In addition, securities designated as qualified collateral for FHLB borrowing capacity amounted to $53.6 million and $46.2 million at September 30, 2007 and December 31, 2006 respectively.