Note 5: Investment Securities

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

	At September 30, 2013
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Collateralized mortgage obligations	$	122,657	$	521	$	(2,760	)	$	120,418
Mortgage-backed securities		15,007		634		(55	)		15,586
Municipal securities		8,004		97		(99	)		8,002
Corporate bonds		32,188		805		-			32,993
Asset-backed securities		19,234		324		-			19,558
Trust preferred securities		5,345		-		(2,297	)		3,048
Other securities		115		2		-			117
Total securities available for sale	$	202,550	$	2,383	$	(5,211	)	$	199,722

U.S. Government agencies	$	1	$	-	$	-		$	1
Other securities		68		-		-			68
Total securities held to maturity	$	69	$	-	$	-		$	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 September 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	$	18,899	$	19,173	$	48	$	48
After 1 year to 5 years		64,862		64,836		21		21
After 5 years to 10 years		110,860		107,567		-		-
After 10 years		7,929		8,146		-		-
Total	$	202,550	$	199,722	$	69	$	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 September 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 September 30, 2013 and December 31, 2012. In addition, the Company did not hold any private issued CMO’s as September 30, 2013 and December 31, 2012. As of September 30, 3013 and December 31, 2012, the asset-backed securities consist 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 nine months ended September 30, 2013. Impairment charges (credit losses) on trust preferred securities for the three and nine months ended September 30, 2012 amounted to $0 and $31,000, respectively.

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

	September 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, September 30th	$	3,959	$	3,956

The Company realized gross gains on the sale of securities of $703,000 during the nine months ended September 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 nine months ended September 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 September 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		$	80,855	$	2,760	$	-	$	-	$	80,855	$	2,760
Mortgage-backed securities			1,160		55		-		-		1,160		55
Municipal securities			2,344		99		-		-		2,344		99
Corporate bonds			-		-		-		-		-		-
Trust preferred securities			-		-		3,048		2,297		3,048		2,297
U.S. Government Agencies			1		-		-		-		1		-
Total		$	84,360	$	2,914	$	3,048	$	2,297	$	87,408	$	5,211

	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 amounted to $5.2 million on securities with a total fair value of $87.4 million at September 30, 2013. The most significant components of this impairment are related to the collateralized mortgage obligations and the trust preferred securities held in the portfolio. The unrealized losses on the collateralized mortgage obligations are temporary in nature and are primarily related to the recent movement in market interest rates rather than the underlying credit quality of the issuers. The Company does currently intend to sell these securities prior to their maturity or the recovery of their cost bases and believes that it is more likely than not that it will not have to sell these securities prior to their maturity or the recovery of their cost bases.

At September 30, 2013, the investment portfolio included twenty-three collateralized mortgage obligations with a total market value of $120.4 million. Sixteen of these securities carried an unrealized loss at September 30, 2013. At September 30, 2013, the investment portfolio included forty-one mortgage-backed securities with a total market value of $15.6 million. One of these securities carried an unrealized loss at September 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 September 30, 2013.

The unrealized losses on the trust preferred securities are primarily the result of the secondary market for such securities becoming inactive and are also considered temporary at this time.

The following table provides additional detail about the trust preferred securities held in the portfolio as of September 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	)	Caa2			6		18	%		0.37	%	$	-
Preferred Term Securities VII	Mezzanine Notes		1,056		780		(276	)		C		12		53			0.34			2,173
TPREF Funding II	Class B Notes		739		362		(377	)		C		16		44			0.36			260
TPREF Funding III	Class B2 Notes		1,521		782		(739	)		C		17		34			0.34			480
Trapeza CDO I, LLC	Class C1 Notes		556		271		(285	)		C		9		49			0.38			470
ALESCO Preferred Funding IV	Class B1 Notes		604		361		(243	)		C		38		14			0.36			396
ALESCO Preferred Funding V	Class C1 Notes		820		452		(368	)		C		38		24			0.36			180
Total		$	5,345	$	3,048	$	(2,297	)				136		33	%				$	3,959

At September 30, 2013, the investment portfolio included thirteen municipal securities with a total market value of $8.0 million. Three of these securities carried an unrealized loss totaling $0.1 million at September 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 September 30, 2013, management found no evidence of OTTI on any of the municipal securities held in the investment securities portfolio.