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, 2014 and December 31, 2013 is as follows:

	At September 30, 2014
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Collateralized mortgage obligations	$	83,145	$	326	$	(346	)	$	83,125
Mortgage-backed securities		12,832		611		(56	)		13,387
Municipal securities		12,246		348		(41	)		12,553
Corporate bonds		26,908		818		-			27,726
Asset-backed securities		18,532		204		-			18,736
Trust preferred securities		5,261		-		(2,082	)		3,179
Other securities		115		9		-			124
Total securities available for sale	$	159,039	$	2,316	$	(2,525	)	$	158,830

U.S. Government agencies	$	1	$	-	$	-		$	1
Collateralized mortgage obligations		68,970		123		(468	)		68,625
Other securities		20		-		-			20
Total securities held to maturity	$	68,991	$	123	$	(468	)	$	68,646

	At December 31, 2013
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Collateralized mortgage obligations	$	127,242	$	665	$	(4,467	)	$	123,440
Mortgage-backed securities		15,669		623		(111	)		16,181
Municipal securities		9,737		68		(162	)		9,643
Corporate bonds		32,174		1,079		-			33,253
Asset-backed securities		19,089		318		-			19,407
Trust preferred securities		5,277		-		(2,427	)		2,850
Other securities		115		2		-			117
Total securities available for sale	$	209,303	$	2,755	$	(7,167	)	$	204,891

U.S. Government agencies	$	1	$	-	$	-		$	1
Other securities		20		-		-			20
Total securities held to maturity	$	21	$	-	$	-		$	21

The maturity distribution of the amortized cost and estimated market value of investment securities by contractual maturity at September 30, 2014 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	$	14,979	$	15,211	$	-	$	-
After 1 year to 5 years		63,314		63,848		41,733		41,676
After 5 years to 10 years		69,020		67,598		27,258		26,970
After 10 years		11,726		12,173		-		-
Total	$	159,039	$	158,830	$	68,991	$	68,646

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, 2014 and December 31, 2013, 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, 2014 and December 31, 2013. In addition, the Company did not hold any private issued collateralized mortgage obligations (“CMOs”) as of September 30, 2014 and December 31, 2013. As of September 30, 2014 and December 31, 2013, 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. Impairment charges (credit losses) on trust preferred securities for the nine months ended September 30, 2014 amounted to $7,000. There were no impairment charges (credit losses) on trust preferred securities during the three month period ended September 30, 2014 or the three and nine month periods ended September 30, 2013.

The following table presents a roll-forward of the balance of credit-related impairment losses on securities held at September 30, 2014 and 2013 for which a portion of OTTI was recognized in other comprehensive income:

(dollars in thousands)	2014		2013

Beginning Balance, January 1st	$	3,959	$	3,959
Additional credit-related impairment loss on securities for which an
other-than-temporary impairment was previously recognized		7		-
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	$	3,966	$	3,959

The Company realized gross gains on the sale of securities of $458,000 during the nine months ended September 30, 2014. The related sale proceeds amounted to $5.7 million. The tax provision applicable to these gross gains in 2014 amounted to approximately $165,000. 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 tax provisions applicable to the gains in both nine month periods were offset by an adjustment to the deferred tax asset valuation allowance.

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, 2014
	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		$	50,551		$	480		$	30,221		$	334	$	80,772		$	814
Mortgage-backed securities			1,461			9			1,075			47		2,536			56
Municipal securities			-			-			1,384			41		1,384			41
Trust preferred securities			-			-			3,179			2,082		3,179			2,082
Total		$	52,012		$	489		$	35,859		$	2,504	$	87,871		$	2,993

	At December 31, 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		$	73,137		$	3,923		$	8,697		$	544	$	81,834	$	4,467
Mortgage-backed securities			1,450			41			1,123			70		2,573		111
Municipal Securities			5,108			162			-			-		5,108		162
Trust preferred securities			-			-			2,850			2,427		2,850		2,427
Total		$	79,695		$	4,126		$	12,670		$	3,041	$	92,365	$	7,167

The impairment of the investment portfolio amounted to $3.0 million on securities with a total fair value of $87.9 million at September 30, 2014. The most significant components of this impairment are related to the CMOs and the trust preferred securities held in the portfolio. The unrealized losses on the CMOs are primarily related to the recent movement in market interest rates rather than the underlying credit quality of the issuers. The Company does not currently intend to sell these securities prior to maturity or the recovering the cost bases and does not believe it will be forced to sell these securities prior to maturity or recovering the cost bases.

At September 30, 2014, the investment portfolio included thirty-two CMOs with a total market value of $151.8 million. Sixteen of these securities carried an unrealized loss at September 30, 2014. At September 30, 2014, the investment portfolio included forty-two mortgage-backed securities with a total market value of $13.4 million. Two of these securities carried an unrealized loss at September 30, 2014. Management found no evidence of OTTI on any of these securities and the unrealized losses are due to changes in fair value resulting from changes in market interest rates and are considered temporary as of September 30, 2014.

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 trust preferred securities held in the portfolio as of September 30, 2014.

(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 2014 and beyond			Cumulative OTTI Life to Date
Preferred Term Securities IV	Mezzanine Notes	$	49	$	40	$	(9	)		B1		6		18	%		0.31	%	$	-
Preferred Term Securities VII	Mezzanine Notes		979		809		(170	)		D		11		54			0.35			2,173
TPREF Funding II	Class B Notes		732		379		(353	)		C		17		41			0.35			267
TPREF Funding III	Class B2 Notes		1,521		775		(746	)		C		15		36			0.27			480
Trapeza CDO I, LLC	Class C1 Notes		556		324		(232	)		C		8		49			0.30			470
ALESCO Preferred Funding IV	Class B1 Notes		604		414		(190	)		C		40		8			0.32			396
ALESCO Preferred Funding V	Class C1 Notes		820		438		(382	)		C		41		15			0.33			180
Total		$	5,261		3,179	$	(2,082	)				138		30	%				$	3,966

At September 30, 2014, the investment portfolio included twenty-two municipal securities with a total market value of $12.6 million. One of these securities carried an unrealized loss at September 30, 2014. 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 eleven municipal securities had a market value of $6.4 million. As of September 30, 2014, management found no evidence of OTTI on any of the municipal securities held in the investment securities portfolio.

In July 2014, thirteen CMOs with a fair value of $70.1 million that were previously classified as available-for-sale were transferred to the held-to-maturity category. These securities were transferred at fair value. Unrealized losses of $1.2 million associated with the transferred securities will remain in other comprehensive income and be amortized as an adjustment to yield over the remaining life of those securities. At September 30, 2014, the fair market value of the securities transferred to held-for-maturity is $68.6 million and the unrealized losses are $1.5 million.