4.	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, 2013 and December 31, 2012:


(Dollars in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Estimated Fair Value
Securities available for sale at June 30, 2013:
Mortgage backed securities issued by U.S. agencies⁽¹⁾	$	64,883	$	22	$	(2,271	)	$	62,634
Collateralized mortgage obligations issued by non-agency⁽¹⁾		2,309		60		(61	)		2,308
Asset backed securities⁽²⁾		2,247		—		(1,472	)		775
Mutual funds⁽³⁾		4,233		—		—			4,233

Total securities available for sale	$	73,672	$	82	$	(3,804	)	$	69,950

Securities available for sale at December 31, 2012:
Mortgage-backed securities issued by U.S. agencies⁽¹⁾	$	78,053	$	553	$	(160	)	$	78,446
Collateralized mortgage obligations issued by non-agency⁽¹⁾		2,599		87		(61	)		2,625
Asset backed securities⁽²⁾		2,247		—		(1,347	)		900
Mutual funds⁽³⁾		4,407		—		—			4,407

Total securities available for sale	$	87,306	$	640	$	(1,568	)	$	86,378

⁽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, 2013 and December 31, 2012, U.S. agency mortgage backed securities and collateralized mortgage obligations with an aggregate fair market value of $13 million and $10 million, respectively, were pledged to secure Federal Home Loan Bank borrowings, repurchase agreements, local agency deposits and Treasury, tax and loan accounts.

The amortized costs and estimated fair values of securities available for sale at June 30, 2013 and December 31, 2012, 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, 2013 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	$	11,443		$	32,600		$	17,803		$	11,826		$	73,672
Securities available for sale, estimated fair value		11,113			31,723			17,096			10,018			69,950
Weighted average yield		1.28	%		1.51	%		1.49	%		1.36	%		1.45	%

	At December 31, 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	$	11,679		$	35,038		$	24,738		$	15,851		$	87,306
Securities available for sale, estimated fair value		11,788			35,264			24,747			14,579			86,378
Weighted average yield		1.59	%		1.62	%		1.62	%		1.43	%		1.58	%

The Company recognized net gains on sales of securities available for sale of $23,000, on sale proceeds of $6.2 million during the six months ended June 30, 2013 and $1.2 million, on sale proceeds of $136 million during the six months ended June 30, 2012.

The table below indicates, as of June 30, 2013, the gross unrealized losses and fair values of our investments, 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, 2013
	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	$	61,183		(2,270	)		38		(1	)		61,221		(2,271	)
Collateralized mortgage obligations issued by non-agency		—		—			1,065		(61	)		1,065		(61	)
Asset backed securities		—		—			775		(1,472	)		775		(1,472	)

Total temporarily impaired securities	$	61,183	$	(2,270	)	$	1,878	$	(1,534	)	$	63,061	$	(3,804	)

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 of selling, 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, 2013. We recorded no impairments of credit losses on available-for-sale securities in our consolidated statement of operations for the six months ended June 30, 2013. The OTTI related to factors other than credit losses, in the aggregate amount of $1.4 million, was recognized as other comprehensive loss in our balance sheet at June 30, 2013.

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, 2013:


(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 (Deficit)
Balance – December 31, 2012	$	(1,995	)	$	(1,264	)	$	(731	)
Additions for credit losses on securities for which an OTTI was not previously recognized		(44	)		(44	)		—

Balance – March 31, 2013	$	(2,039	)	$	(1,308	)	$	(731	)

Additions for credit losses on securities for which an OTTI was not previously recognized		(105	)		(105	)		—

Balance – June 30, 2013	$	(2,144	)	$	(1,413	)	$	(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 any credit enhancements, (ii) historical prepayment speeds, (iii) delinquency and default rates, (iv) loss severities, (v) the age or “vintage” of the security, and (vi) any 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 is one asset-backed security in our portfolio of securities held for sale that was impaired as of June 30, 2013. 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 consisting of 45 U.S. depository institutions and 11 insurance companies at the time of the security’s issuance in November 2007. We purchased $3.0 million face amount of this security in November 2007 at a price of 95.21% for a total purchase price of $2.9 million, out of a total of $363 million of this security sold at the time of issuance. The security that we own (CUSIP 74042CAE8) is the mezzanine class B piece security with a variable interest rate of 3 month LIBOR +60 basis points, which had a rating of Aa2/AA by Moody’s and Fitch at the time of issuance in 2007.

As of June 30, 2013 the amortized cost of this security was $2.25 million with a fair value of $775,000, for an unrealized loss of approximately $1.5 million. As of June 30, 2013, the security had a Ca rating from Moody’s and CC rating from Fitch and had experienced $42.5 million in defaults (12.5% of total current collateral) and $43.5 million in deferring securities (12.8% of total current collateral) from issuance to June 30, 2013. The security did not pay its scheduled second quarter 2013 interest payment. We are not currently accruing interest on this security. We estimate that the security could experience another $72.5 million in defaults before the issuer would not receive all of the contractual cash flows under this security. This analysis is based on the following assumptions: future default rates of 2.5%, prepayment rates of 1% until maturity, and 15% recovery of future defaults. With respect to this security, we did not recognize any impairment losses to earnings during the second quarter of 2013; whereas we recognized $77,000 of impairment losses to earnings for the same period in 2012. Set forth below is additional information regarding impairment losses that we recognized in earnings for the six months ended June 30, 2013 and 2012:


Impairment Losses on OTTI Securities	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(Dollars in thousands)	2013		2012		2013		2012
Asset backed securities	$	0	$	—	$	0	$	77

Total impairment loss recognized in earnings	$	0	$	—	$	0	$	77

We have made a determination that the remainder of our securities with respect to which there were unrealized losses as of June 30, 2013 were not other-than-temporarily impaired, because we concluded that we had 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).