8.	Investment Securities Available For Sale

The following table sets forth the major components of securities available for sale and compares the amortized costs and estimated fair market values of, and the gross unrealized gains and losses on, these securities at June 30, 2012 and December 31, 2011:


(Dollars in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Estimated Fair Value
Securities available for sale at June 30, 2012:
Mortgage backed securities issued by U.S. Agencies⁽¹⁾		91,031		327		(19	)		91,339

Total		91,031		327		(19	)		91,339
Municipal securities		470		—		—			470
Collateralized mortgage obligations issued by non-agency⁽¹⁾		2,819		—		(179	)		2,640
Asset backed securities⁽²⁾		2,247		—		(2,010	)		237
Mutual funds⁽³⁾		4,425		—		—			4,425

Total Securities Available for Sale	$	100,992	$	327	$	(2,208	)	$	99,111

Securities available for sale at December 31, 2011:
Mortgage-backed securities issued by US agencies	$	133,859	$	630	$	(363	)	$	134,126
Municipal securities		6,389		96		(42	)		6,443
Non-agency collateralized mortgage obligations		3,040		—		(455	)		2,585
Asset backed securities		2,324		—		(1,944	)		380
Mutual fund		4,375		—		—			4,375

Total securities available for sale	$	149,987	$	726	$	(2,804	)	$	147,909

(1)	Secured by closed-end first lien 1-4 family residential mortgages.

(2)	Comprised of a security that represents an interest in a pool of trust preferred securities issued by U.S.-based banks and insurance companies

(3)	Consists primarily of mutual fund investments in closed-end first lien 1-4 family residential mortgages.

At June 30, 2012 and December 31, 2011, U.S. agencies/mortgage backed securities and collateralized mortgage obligations with an aggregate fair market value of $10 million and $12 million, respectively, were pledged to secure Federal Home Loan Bank borrowings, repurchase agreements, local agency deposits and Treasury, tax and loan accounts.

The amortized cost and estimated fair values of securities available for sale at June 30, 2012 and December 31, 2011, are shown in the table below by contractual maturities and historical prepayments based on the prior twelve months of principal payments. Expected maturities will differ from contractual maturities and historical prepayments, particularly with respect to collateralized mortgage obligations, primarily because prepayment rates are affected by changes in conditions in the interest rate market and, therefore, future prepayment rates may differ from historical prepayment rates.


	At June 30, 2012 Maturing in
(Dollars in thousands)	One year or less			Over one year through five years			Over five years through ten years			Over ten Years			Total
Securities available for sale, amortized cost	$	6,814		$	29,690		$	30,410		$	34,078		$	100,992
Securities available for sale, estimated fair value		6,822			29,591			30,533			32,166			99,111
Weighted average yield		2.13	%		2.13	%		2.09	%		2.01	%		2.07	%

	At December 31, 2011 Maturing in
(Dollars in thousands)	One year or less			Over one year through five years			Over five years through ten years			Over ten Years			Total
Securities available for sale, amortized cost	$	13,443		$	44,574		$	38,950		$	53,020		$	149,987
Securities available for sale, estimated fair value		13,388			44,353			39,087			51,081			147,909
Weighted average yield		2.15	%		2.32	%		2.43	%		2.48	%		2.39	%

The Company recognized net gains on sales of securities available for sale of $776,000, net of $410,000 of taxes, on sale proceeds of $136 million during the six months ended June 30, 2012 and $33,000, net of $7,000 of taxes, on sale proceeds of $6 million during the six months ended June 30, 2011.

The table below indicates, as of June 30, 2012, the gross unrealized losses and fair values of our investments, in thousands of dollars, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.


	Securities with Unrealized Loss at June 30, 2012
	Less than 12 months					12 months or more					Total
Dollars in thousands	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Mortgage backed securities issued by U.S. Agencies		23,129		(18	)		40		(1	)		23,169		(19	)
Municipal securities		—		—			—		—			—		—
Non-agency collateralized mortgage obligations		—		—			2,640		(179	)		2,640		(179	)
Asset backed securities		—		—			237		(2,010	)		237		(2,010	)

Total temporarily impaired securities	$	23,129	$	(18	)	$	2,917	$	(2,190	)	$	26,046	$	(2,208	)

We regularly monitor investments for significant declines in fair value. We have determined that declines in the fair values of these investments below their respective amortized costs, as set forth in the table above, are temporary because (i) those declines were due to interest rate changes and not to a deterioration in the creditworthiness of the issuers of those investment securities, and (ii) we have the ability to hold those securities until there is a recovery in their values or until their maturity.

We recognize other-than-temporary impairments (“OTTI”) for our available-for-sale debt securities in accordance with ASC 320-10. When there are credit losses associated with an impaired debt security, but we have no intention to sell, and it is more likely than not that we will not have to sell the security before recovery of its cost basis, we will separate the amount of impairment, or OTTI, between the amount that is credit related and the amount that is related to non-credit factors. Credit-related impairments are recognized in our consolidated statements of operations. Any non-credit-related impairments are recognized and reflected in other comprehensive income (loss).

Through the impairment assessment process, we determined that the available-for-sale securities discussed below were other-than-temporarily impaired at June 30, 2012. We recorded in our consolidated statements of operations for the three month period ended June 30, 2012 no impairment of credit losses on available-for-sale securities. The OTTI related to factors other than credit losses, in the aggregate amount of $2.0 million, was recognized as other comprehensive loss in our balance sheet at June 30, 2012.

The table below presents a roll-forward of OTTI where a portion attributable to non-credit related factors was recognized in other comprehensive loss for the six months ended June 30, 2012:


(Dollars in thousands)	Gross Other- Than- Temporary Impairments			Other-Than- Temporary Impairments Included in Other Comprehensive Loss			Net Other-Than Temporary Impairments Included in Retained Earnings
Balance — December 31, 2011	$	(2,707	)	$	(2,053	)	$	(654	)
Additions for credit losses on securities for which an OTTI was not previously recognized		(25	)		52			(77	)

Balance — March 31, 2012	$	(2,732	)	$	(2,001	)	$	(731	)
Additions for credit losses on securities for which an OTTI was not previously recognized		(20	)		(20	)		—

Balance — June 30, 2012	$	(2,752	)	$	(2,021	)	$	(731	)

In determining the component of OTTI related to credit losses, we compare the amortized cost basis of each OTTI security to the present value of its expected cash flows, discounted using the effective interest rate implicit in the security at the date of acquisition.

As a part of our OTTI assessment process with respect to securities held for sale with unrealized losses, we consider available information about (i) the performance of the collateral underlying each such security, including credit enhancements, (ii) historical prepayment speeds, (iii) delinquency and default rates, (iv) loss severities, (v) the age or “vintage” of the security, and (vi) rating agency reports on the security. Significant judgments are required with respect to these and other factors when making a determination of the future cash flows that can be expected to be generated by the security.

Based on our OTTI assessment process, we determined that there were two different investment securities, an asset backed security and a non-agency collateralized mortgage obligation (“CMO”), in our portfolio of securities held for sale that had become or were impaired as of June 30, 2012.

Asset-Backed Security. At June 30, 2012, we had one impaired asset backed security in our portfolio of available for sale investment securities. This security is a multi-class, cash flow collateralized bond obligation backed by a pool of trust preferred securities issued by a diversified pool of 56 issuers which consisted of 45 U.S. depository institutions and 11 insurance companies at the time of the security’s issuance in November 2007. This security was part of a $363 million issuance. The security that we own (CUSIP 74042CAE8) in the mezzanine class B piece security had a variable interest rate of 3 month LIBOR +60 basis points and a rating of Aa2/AA by Moody’s and Fitch at the time of issuance. We purchased $3.0 million face value of this security in November 2007 at a price of 95.21% for a total purchase price of $2,856,420.

As of June 30, 2012 the amortized cost of this security was $2.3 million with a fair value of $237,000 for an approximate unrealized loss of $2.0 million. Currently, the security has a Ca rating from Moody’s and CC rating from Fitch and has experienced $47.5 million in defaults (13.2% of total current collateral) and $49.5 million in payment deferrals (13.7% of total current collateral) from issuance to June 30, 2012. Since June 30, 2010, the security has not paid its scheduled quarterly interest payment, and the Company has not accrued interest on this security. The Company estimates that the security could experience another $63.5 million in defaults before we would not receive all of its contractual cash flows. This analysis is based on the following assumptions: future default rates of 2.0%, prepayment rates of 1% until maturity, and 15% recovery of future defaults. We have recognized no impairment losses in earnings with respect to this security for the three months ended June 30, 2012 and $77,000 for the six months ended June 30, 2011.

Non Agency CMO. Through our impairment analysis, we identified one non-agency collateralized mortgage obligation security (a “CMO”) with respect to which we recognized OTTI at June 30, 2012. This CMO is a “Super Senior Support” bond, which was originated in 2005, was then rated AAA by Standard & Poor’s and Aa1 by Moody’s, and had a credit support of 2.5% of the total balance at issuance. At June 30, 2012, the security was rated BBB and Caa3 by Standard and Poor’s and Moody’s, respectively, and was determined to have a fair value of $657,000, as compared to an amortized cost of $669,000, resulting in an unrealized loss of approximately $12,000. The CMO is collateralized by a pool of one-to-four family, fully amortizing residential first mortgage loans that bear interest at a fixed rate for approximately five years, after which they bear interest at variable rates with annual resets.

At June 30, 2011, credit support underlying this CMO was approximately 5.2% and delinquencies that were 60 days or over totaled approximately 3.8%. Factors considered in determining that this security was impaired included the changes in the ratings of the security, the current level of subordination from other CMO classes, anticipated prepayment rates, cumulative default rates and the loss severity given a default.

Based on our impairment assessment and analysis, we recorded no impairment charge in our statement of operations for the six months ended June 30, 2012 with respect to this security. The unrealized loss on this security, of $12,000, was recognized in other comprehensive loss on our balance sheet, because we concluded that this loss was attributable to non-credit factors, such as external market conditions, the limited liquidity of the security and risks of potential additional declines in the housing market.

We have made a determination that the remainder of our securities with respect to which there were unrealized losses as of June 30, 2012 are not other-than-temporarily impaired, because we have concluded that we have the ability to continue to hold those securities until their respective fair market values increase above their respective amortized costs or, if necessary, until their respective maturities. In reaching that conclusion we considered a number of factors and other information, which included: (i) the significance of each such security, (ii) the amount of the unrealized losses attributable to each such security, (iii) our liquidity position, (iv) the impact that retention of those securities could have on our capital position and (v) our evaluation of the expected future performance of these securities (based on the criteria discussed above).

Impairment Losses on OTTI Securities


	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
	(Dollars in thousands)
Asset Backed Security	$	—	$	63	$	77	$	115
Non Agency CMO		—		—		—		—

Total impairment loss recognized in earnings	$	—	$	63	$	77	$	115