Securities

Securities at March 31, 2014 and December 31, 2013 are as follows:



	March 31, 2014
	Amortized		Gross Unrealized					Fair
	Cost		Gains		Losses			Value
Securities available-for-sale
U.S. Government-sponsored enterprises	$	56,821	$	462	$	(1,409	)	$	55,874
Mortgage-backed and asset-backed securities – government-sponsored enterprises	144,860		942		(1,754		)	144,048
Mortgage-backed and asset-backed securities – private labeled	1,227		6		(66		)	1,167
Other securities	5,014		—		(1,234		)	3,780
Total available-for-sale	$	207,922	$	1,410	$	(4,463	)	$	204,869



	December 31, 2013
	Amortized		Gross Unrealized					Fair
	Cost		Gains		Losses			Value
Securities available-for-sale
U.S. Government-sponsored enterprises	$	57,569	$	470	$	(1,762	)	$	56,277
Municipals	46,126		1,080		(883		)	46,323
Mortgage-backed and asset-backed securities – government-sponsored enterprises	75,058		696		(1,813		)	73,941
Mortgage-backed and asset-backed securities – private labeled	1,313		9		(90		)	1,232
Other securities	5,025		—		(1,389		)	3,636
Total available-for-sale	$	185,091	$	2,255	$	(5,937	)	$	181,409

The carrying value of securities at March 31, 2014 is shown below by their contractual maturity date. Actual maturities will differ because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.



	Available-for-Sale
	Amortized Cost		Fair Value
Within one year	$	2,000	$	1,969
One to five years	21,498		21,107
Five to ten years	9,373		9,275
After ten years	28,964		27,303
	61,835		59,654
Mortgage-backed and asset-backed securities – government-sponsored enterprises	144,860		144,048
Mortgage-backed and asset-backed securities – private labeled	1,227		1,167
Totals	$	207,922	$	204,869

Gross gains of $1,402 and $102, and gross losses of $1,043 and $287 resulting from sales of available for sale securities were realized for three month period ended March 31, 2014 and 2013, respectively. In 2014, the Company sold all securities that were held in its municipal securities portfolio at December 31, 2013. In the three month period ended March 31, 2014, the Company recorded a pretax gain on sale of securities of $359.

Certain investments in debt securities are reported in the condensed consolidated financial statements at an amount less than their historical cost. Total fair value of these investments at March 31, 2014 and December 31, 2013 was $152,498 and $109,946, which is approximately 73% and 61%, respectively, of the Company’s available-for-sale investment portfolio. These declines primarily resulted from fluctuations in market interest rates after purchase.

Except as discussed below, management believes the declines in fair value for these securities are temporary.

Should the impairment of any of these securities become other-than-temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period in which the other-than-temporary impairment (“OTTI”) is identified.

The following tables show the Company’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2014 and December 31, 2013:



	March 31, 2014
	Less Than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Securities available for sale:
U.S. Government-sponsored enterprises	$	36,935	$	(1,374	)	$	6,207	$	(35	)	$	43,142	$	(1,409	)
Municipals	—		—			—		—			—		—
Mortgage-backed and asset-backed securities - government-sponsored enterprises	104,772		(1,754		)	—		—			104,772		(1,754		)
Mortgage-backed and asset-backed securities – private labeled	—		—			804		(66		)	804		(66		)
Other securities	1,969		(31		)	1,811		(1,203		)	3,780		(1,234		)
	$	143,676	$	(3,159	)	$	8,822	$	(1,304	)	$	152,498	$	(4,463	)



	December 31, 2013
	Less Than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Securities available for sale:
U.S. Government-sponsored enterprises	$	43,085	$	(1,761	)	$	14	$	(1	)	$	43,099	$	(1,762	)
Municipals	14,105		(882		)	351		(1		)	14,456		(883		)
Mortgage-backed and asset-backed securities - government-sponsored enterprises	47,875		(1,813		)	—		—			47,875		(1,813		)
Mortgage-backed and asset-backed securities – private labeled	43		(1		)	838		(89		)	881		(90		)
Other securities	1,962		(38		)	1,673		(1,351		)	3,635		(1,389		)
	$	107,070	$	(4,495	)	$	2,876	$	(1,442	)	$	109,946	$	(5,937	)

U.S. Government Sponsored Enterprise and Municipal Securities

The unrealized losses on the Company’s investments in securities issued by U.S. Government sponsored enterprises and municipal securities were caused by interest rate changes. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments at a loss and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other than temporarily impaired at March 31, 2014.

Mortgage-Backed Securities

The unrealized losses on the Company’s investment in mortgage-backed securities were caused by interest rate changes. The Company expects to recover the amortized cost basis over the term of the securities. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments at a loss and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other than temporarily impaired at March 31, 2014.

For identified mortgage-backed securities in the investment portfolio, an extensive, quarterly review is conducted to determine if an other-than-temporary impairment has occurred. Various inputs to the economic models are used to determine if an unrealized loss is other than temporary. The most significant inputs are voluntary prepay rates, default rates, liquidation rates and loss severity.

To determine if the unrealized loss for mortgage-backed securities is other than temporary, the Company projects total estimated defaults of the underlying assets (mortgages) and multiplies that calculated amount by an estimate of realizable value upon sale in the marketplace (severity) in order to determine the projected collateral loss. The Company also evaluates the current credit enhancement underlying the bond to determine the impact on cash flows. If the Company determines that a given mortgage-backed security position will be subject to a write-down or loss, the Company records the expected credit loss as a charge to earnings.

Other Securities

The Company’s unrealized loss on investments in other securities primarily consists of two investments.

The first investment is a $2,000 par investment in I-PreTSL I B-2 pooled trust security. The unrealized loss was primarily caused by a sector downgrade by several industry analysts. The Company currently expects to recover the entire amortized cost basis of the investment. The determination of no credit loss was calculated by comparing expected discounted cash flows based on performance indicators of the underlying assets in the security to the carrying value of the investment. Because the Company does not intend to sell the investment and it is not more likely than not the Company will be required to sell the investment before recovery of its amortized cost basis, which may be maturity, it does not consider the remainder of the investment to be other than temporarily impaired at March 31, 2014.

The second investment is a $2,000 par investment in ALESCO IV Series B2 pooled trust security on which the Company recognized an other than temporary impairment loss. The unrealized loss was primarily caused by (a) a decrease in performance and (b) a sector downgrade by several industry analysts. The Company currently expects this security to settle at a price less than the contractual amount of the investment (that is, the Company expects to recover less than the entire amortized cost basis of the security). The Company has recognized a loss equal to the credit loss, establishing a new, lower amortized cost basis. The credit loss was calculated by comparing expected discounted cash flows based on performance indicators of the underlying assets in the security to the carrying value of the investment. Because the Company does not intend to sell the investment and it is unlikely the Company will be required to sell the investment before recovery of its new, lower amortized cost basis, which may be maturity, it does not consider the remainder of the investment in ALESCO IV to be other-than-temporarily impaired at March 31, 2014.

The credit losses recognized in earnings during the three months ended March 31, 2014 and 2013 were as follows:



	Three Months Ended March 31,
	2014		2013
Mortgage-backed and asset-backed securities – private labeled	—		34
Total credit losses recognized in earnings	$	—	$	34

Credit Losses Recognized on Investments

Certain debt securities have experienced fair value deterioration due to credit losses, as well as due to other market factors, but are not otherwise other-than-temporarily impaired.

The following tables provide information about debt securities for which only a credit loss was recognized in income and other losses are recorded in accumulated other comprehensive loss.



	Accumulated Credit Losses
Credit losses on debt securities held
January 1, 2014	$	1,183
Realized losses related to OTTI	(33		)
Additions related to OTTI losses not previously recognized	—
Additions related to increases in previously recognized OTTI losses	—
March 31, 2014	$	1,150



	Accumulated Credit Losses
Credit losses on debt securities held
January 1, 2013	$	1,737
Realized losses related to OTTI	(266		)
Additions related to OTTI losses not previously recognized	31
Additions related to increases in previously recognized OTTI losses	3
March 31, 2013	$	1,505

Amounts reclassified from accumulated other comprehensive loss and the affected line items in the condensed consolidated statements of income during the three months ended March 31, 2014 and 2013, were as follows:



	Amounts Reclassified from Accumulated Other Comprehensive Loss for the Three Months Ended March 31,					Affected Line Item in the Statements of Income
	2014		2013			Affected Line Item in the Statements of Income
Securities available for sale
Gain (loss) realized in earnings	$	359	$	(185	)	Gain (loss) on sale of securities
OTTI losses recognized in earnings	—		(34		)	Other-than-temporary impairment loss recognized in net income
Total reclassified amount before tax	359		(219		)	Income Before Income Taxes
Tax expense (benefit)	126		(77		)	Income Tax Provision
Total reclassifications out of accumulated other comprehensive loss	$	233	$	(142	)	Net Income