Note 5: Investment Securities

A summary of the amortized cost and market value of securities available for sale and securities held to maturity at June 30, 2013 and December 31, 2012 is as follows:

	At June 30, 2013
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Collateralized mortgage obligations	$	106,473	$	588	$	(2,293	)	$	104,768
Mortgage-backed securities		17,647		718		(60	)		18,305
Municipal securities		5,360		97		(97	)		5,360
Corporate bonds		32,203		773		-			32,976
Asset-backed securities		19,416		268		-			19,684
Trust preferred securities		5,766		-		(2,604	)		3,162
Other securities		115		1		-			116
Total securities available for sale	$	186,980	$	2,445	$	(5,054	)	$	184,371

U.S. Government agencies	$	1	$	-	$	-		$	1
Other securities		67		1		-			68
Total securities held to maturity	$	68	$	1	$	-		$	69

	At December 31, 2012
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Collateralized mortgage obligations	$	97,959	$	1,830	$	(6	)	$	99,783
Mortgage-backed securities		20,626		1,014		-			21,640
Municipal securities		11,150		967		(16	)		12,101
Corporate bonds		32,231		639		(185	)		32,685
Asset-backed securities		19,785		135		(191	)		19,729
Trust preferred securities		5,785		-		(2,598	)		3,187
Other securities		131		3		-			134
Total securities available for sale	$	187,667	$	4,588	$	(2,996	)	$	189,259

U.S. Government agencies	$	1	$	-	$	-		$	1
Other securities		66		2		-			68
Total securities held to maturity	$	67	$	2	$	-		$	69

The maturity distribution of the amortized cost and estimated market value of investment securities by contractual maturity at June 30, 2013 is as follows:

	Available for Sale				Held to Maturity
(dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in 1 year or less	$	16,175	$	16,516	$	47	$	48
After 1 year to 5 years		72,281		72,383		21		21
After 5 years to 10 years		91,165		87,946		-		-
After 10 years		7,359		7,526		-		-
Total	$	186,980	$	184,371	$	68	$	69

Expected maturities will differ from contractual maturities because borrowers have the right to call or prepay obligations with or without prepayment penalties.

As of June 30, 2013 and December 31, 2012, the collateralized mortgage obligations and mortgage backed securities included in the investment securities portfolio consist solely of securities issued by U.S. government sponsored agencies. There were no private label mortgage securities held in the investment securities portfolio as of those dates. The Company did not hold any mortgage-backed securities that were rated “Alt-A” or “Subprime” as of June 30, 2013 and December 31, 2012. In addition, the Company did not hold any private issued CMO’s as of June 30, 2013 and December 31, 2012. As of June 30, 2013 and December 31, 2012, the asset-backed securities consisted solely of Sallie Mae bonds collateralized by student loans which are guaranteed by the U.S. Department of Education.

In instances when a determination is made that an other-than-temporary impairment exists with respect to a debt security but the investor does not intend to sell the debt security and it is more likely than not that the investor will not be required to sell the debt security prior to its anticipated recovery, accounting standards require the other-than-temporary impairment to be separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to other factors is recognized in other comprehensive income. There were no impairment charges (credit losses) on trust preferred securities for the three and six months ended June 30, 2013. Impairment charges (credit losses) on trust preferred securities for the three and six months ended June 30, 2012 amounted to $14,000 and $31,000, respectively.

The following table presents a roll-forward of the balance of credit-related impairment losses on securities held at June 30, 2013 and 2012 for which a portion of OTTI was recognized in other comprehensive income:

	June 30,
(dollars in thousands)	2013		2012

Beginning Balance, January 1st	$	3,959	$	3,925
Additional credit-related impairment loss on securities for which an
other-than-temporary impairment was previously recognized		-		31
Reductions for securities paid off during the period		-		-
Reductions for securities for which the amount previously recognized in other
comprehensive income was recognized in earnings because the Company
intends to sell the security		-		-
Ending Balance, June 30th	$	3,959	$	3,956

The Company realized gross gains on the sale of securities of $703,000 during the six months ended June 30, 2013. The related sale proceeds amounted to $7.9 million. The tax provision applicable to these gross gains in 2013 amounted to approximately $253,000. The Company realized gross gains on the sale of securities of $774,000 during the three and six months ended June 30, 2012. The related sale proceeds amounted to $22.6 million. The tax provision applicable to these gross gains in 2012 amounted to approximately $271,000.

The following tables show the fair value and gross unrealized losses associated with the investment portfolio, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

	At June 30, 2013
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Collateralized mortgage obligations	$	70,117	$	2,293	$	-	$	-	$	70,117	$	2,293
Mortgage-backed securities		1,178		60		-		-		1,178		60
Municipal securities		1,328		97		-		-		1,328		97
Corporate bonds		-		-		-		-		-		-
Trust preferred securities		-		-		3,162		2,604		3,162		2,604
Total	$	72,623	$	2,450	$	3,162	$	2,604	$	75,785	$	5,054

	At December 31, 2012
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Collateralized mortgage obligations	$	9,991	$	6	$	-	$	-	$	9,991	$	6
Municipal securities		1,050		16		-		-		1,050		16
Corporate bonds		-		-		9,811		185		9,811		185
Asset-backed securities		9,218		191		-		-		9,218		191
Trust preferred securities		-		-		3,187		2,598		3,187		2,598
Total	$	20,259	$	213	$	12,998	$	2,783	$	33,257	$	2,996

The impairment of the investment portfolio totaled $5.1 million with a total fair value of $75.8 million at June 30, 2013. The most significant component of this impairment is related to the trust preferred securities held in the portfolio. Unrealized losses on the trust preferred securities amount to $2.6 million at June 30, 2013. The unrealized losses associated with the trust preferred securities are a result of the secondary market for such securities becoming inactive and are considered temporary at this time.

The following table provides additional detail about trust preferred securities as of June 30, 2013.


(dollars in thousands)	Class / Tranche	Amortized Cost		Fair Value		Unrealized Losses			Lowest Credit Rating Assigned	Number of Banks Currently Performing		Deferrals / Defaults as % of Current Balance			Conditional Default Rates for 2013 and beyond			Cumulative OTTI Life to Date
Preferred Term Securities IV	Mezzanine Notes	$	49	$	40	$	(9	)	CCC		5		27	%		0.32	%	$	-
Preferred Term Securities VII	Mezzanine Notes		1,478		1,071		(407	)	C		13		46			0.33			2,173
TPREF Funding II	Class B Notes		739		336		(403	)	C		16		44			0.38			260
TPREF Funding III	Class B2 Notes		1,520		724		(796	)	C		17		35			0.32			480
Trapeza CDO I, LLC	Class C1 Notes		556		245		(311	)	C		9		49			0.39			470
ALESCO Preferred Funding IV	Class B1 Notes		604		326		(278	)	C		38		14			0.36			396
ALESCO Preferred Funding V	Class C1 Notes		820		420		(400	)	C		37		24			0.35			180
Total		$	5,766		3,162	$	(2,604	)			135		33	%				$	3,959

At June 30, 2013, the investment portfolio included eight municipal securities with a total market value of $5.4 million. One of these securities carried an unrealized loss at June 30, 2013. Each of the municipal securities is reviewed quarterly for impairment. Research on each issuer is completed to ensure the financial stability of the municipal entity. The largest geographic concentration was in Pennsylvania where one municipal security had a market value of $1.3 million. As of June 30, 2013, management found no evidence of OTTI on any of the municipal securities held in the investment securities portfolio.

At June 30, 2013, the investment portfolio included eighteen collateralized mortgage obligations with a total market value of $104.8 million. Thirteen of these securities carried an unrealized loss at June 30, 2013. At June 30, 2013, the investment portfolio included forty-two mortgage-backed securities with a total market value of $18.3 million. One of these securities carried an unrealized loss at June 30, 2013. Management found no evidence of OTTI on any of these securities and the unrealized losses are due to changes in market value resulting from changes in market interest rates and are considered temporary as of June 30, 2013.