Discontinued Operations

9 Months Ended

Sep. 30, 2013

Discontinued Operations

NOTE 15 — DISCONTINUED OPERATIONS

The following tables present the assets and liabilities and financial results of the components of the Company designated as discontinued operations as of and for the periods indicated:

Assets and Liabilities of Discontinued Operations

(Dollars in thousands)	September30, 2013		December31, 2012
Current assets:
Cash and cash equivalents	$	114	$	162
Inventory		433		516
FHLB stock		—		2,051
Real estate owned, net		95		830
Other current assets		45		55
Total current assets of discontinued operations		687		3,614
Intangible assets, net		149		196
Goodwill		400		400
Other noncurrent assets		32		54
Assets of discontinued operations	$	1,268	$	4,264
Current liabilities:
Litigation reserve	$	1,852	$	1,775
Trade payables		189		361
Unclaimed property		19		153
Other current liabilities		5		3
Total current liabilities of discontinued operations		2,065		2,292
Repurchase reserve		6,750		7,500
Liabilities of discontinued operations	$	8,815	$	9,792

Statements of Operations of Discontinued Operations

	ThreeMonthsEndedSeptember30,							NineMonthsEndedSeptember30,
(Dollars in thousands)	2013			2012				2013				2012
Operating revenues and other income (expense)	$	310		$	759		$		885		$		1,901
Operating costs		482			1,221				1,712				4,979
Loss from discontinued operations before income taxes		(172	)		(462	)			(827	)			(3,078	)
Income tax expense		—			—				—				4
Loss from discontinued operations, net of income taxes	$	(172	)	$	(462	)	$		(827	)	$		(3,082	)

Assets and liabilities of discontinued operations include:

Inventory

Inventory consists of a line of skin care products and related materials held at Cosmed.

FHLB stock

FIL was previously a member of the FHLB of San Francisco and, accordingly, was required to purchase stock in order to maintain a borrowing relationship. On July26, 2013, the Company redeemed the FHLB stock and received $2.1 million in cash.

Real estate owned, net

REO, net consists of single-family residential properties acquired through, or in lieu of, foreclosure of loans secured by the properties and is reported at the lower of cost or estimated fair value, net of estimated selling or disposal costs (“net realizable value”). At September30, 2013 and December31, 2012, REO was comprised of one and seven properties, respectively.

Other assets

Other assets include $32 thousand of an investment interest in a community development project that FIL previously maintained for compliance under the CRA, and $45 thousand of prepaid expenses and deposits at September30, 2013. At December31, 2012, other assets include $51 thousand of investment interests in community development projects and similar types of loans and investments and $47 thousand of prepaid expenses and deposits.

Repurchase reserve

The Company maintains a repurchase reserve that represents estimated losses the Company may experience from repurchase claims, both known and unknown, based on breaches of certain representations and warranties provided by FIL to counterparties that purchased the residential real estate loans FIL originated, predominantly from 2002 through the first quarter of 2007, which approximated $120 billion in the aggregate. Management estimates the likely range of the loan repurchase liability based on a number of factors, including, but not limited to, the timing of known claims relative to the loan origination date, the quality of the documentation supporting such claims, the number and involvement of cross-defendants, if any, related to such claims, and a time and expense estimate if a claim were to result in litigation. Additionally, management estimates the likelihood of possible future claims, and considers the unknown population of future claims, based on a number of factors, including, but not limited to, historic claim experience activity, settlement arrangements with counterparties, remaining principal loan balances, as well as the passage of time since FIL originated and sold loans. The estimate is based on currently available information and is subject to known and unknown uncertainties using multiple assumptions requiring significant judgment. Accordingly, actual results may vary significantly from the current estimate.

Total outstanding repurchase claims at September30, 2013 were $101.7 million. Of the outstanding repurchase claims, there has been no communication or other action from the claimants:

●for more than sixty months in the case of $63.1 million in claims, or 62.0% of total claims outstanding;

●for more than thirty-six months, but less than sixty months, in the case of $10.3 million in claims, or 10.2% of total claims outstanding; and

●for more than twenty-four months, but less than thirty-six months, in the case of $28.3 million in claims, or 27.8% of total claims outstanding.

There were no repurchase claims received or settled during the nine months ended September30, 2013. The repurchase reserve liability was $6.8 million and $7.5 million at September30, 2013 and December31, 2012, respectively. Recoveries of provisions for repurchase reserves were $0.2 million for each of the three months ended September31, 2013 and 2012, and $0.7 million for each of the nine months ended September30, 2013 and 2012.