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Securities
 6 Months Ended
Jun. 30, 2014
Investments, Debt and Equity Securities [Abstract]  
Securities
(2)Securities. Securities have been classified according to management’s intent. The carrying amount of securities and approximate fair values are as follows (in thousands):

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
   Cost   Gains   Losses   Value 
Securities Available for Sale:                    
At June 30, 2014:                    
Mortgage-backed securities  $12,371   $324   $(25)  $12,670 
U.S. Government and agency securities   20,875    159    (49)   20,985 
                     
   $33,246   $483   $(74)  $33,655 
                     
Securities Available for Sale:                    
At December 31, 2013:                    
Mortgage-backed securities  $10,425   $269   $(69)  $10,625 
U.S. Government and agency securities   12,561    37    (233)   12,365 
                     
   $22,986   $306   $(302)  $22,990 

  

The amortized cost and carrying value of securities at June 30, 2014 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without prepayment penalties. Securities not due at a single maturity date are shown separately (in thousands):

 

   Securities Available for Sale 
   Amortized   Fair 
   Cost   Value 
         
Due in ten years or more  $20,875    20,985 
Mortgage-backed securities   12,371    12,670 
           
   $33,246   $33,655 

 

Securities with gross unrealized losses at June 30, 2014, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows (in thousands):

 

   Over Twelve Months   Less Than Twelve Months 
   Gross       Gross     
   Unrealized   Fair   Unrealized   Fair 
   Losses   Value   Losses   Value 
Securities Available for Sale:                    
Mortgage-backed securities  $(22)  $1,380   $(3)  $4,275 
U.S. Government and agency securities    (40)   2,480   (9)   2,788 
   $(62)  $3,860   $(12)  $7,063 

 

The unrealized losses on investment securities were caused by market conditions. It is expected that the securities would not be settled at a price less than the book value of the investments. Because the decline in fair value is attributable to market conditions and not credit quality, and because the Company has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.

 

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. A security is impaired if the fair value is less than its carrying value at the financial statement date. When a security is impaired, the Company determines whether this impairment is temporary or other-than-temporary. In estimating other-than-temporary impairment (“OTTI”) losses, management assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of these criteria is met, the entire difference between amortized cost and fair value is recognized in operations. For securities that do not meet the aforementioned criteria, the amount of impairment recognized in operations is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive loss. Management utilizes cash flow models to segregate impairments to distinguish between impairment related to credit losses and impairment related to other factors. To assess for OTTI, management considers, among other things, (i) the severity and duration of the impairment; (ii) the ratings of the security; (iii) the overall transaction structure (the Company’s position within the structure, the aggregate, near-term financial performance of the underlying collateral, delinquencies, defaults, loss severities, recoveries, prepayments, cumulative loss projections, and discounted cash flows); and (iv) the timing and magnitude of a break in modeled cash flows.

 

In evaluating mortgage-backed securities with unrealized losses, management utilizes various resources, including input from independent third party firms to perform an analysis of expected future cash flows. The process begins with an assessment of the underlying collateral backing the mortgage pools. Management develops specific assumptions using as much market data as possible and includes internal estimates as well as estimates published by rating agencies and other third-party sources. The data for the individual borrowers in the underlying mortgage pools are generally segregated by state, FICO score at issue, loan to value at issue and income documentation criteria. Mortgage pools are evaluated for current and expected levels of delinquencies and foreclosures, based on where they fall in the proscribed data set of FICO score, geographics, LTV and documentation type and a level of loss severity is assigned to each security based on its experience. The above-described historical data is used to develop current and expected measures of cumulative default rates as well as ultimate loss frequency and severity within the underlying mortgages. This reveals the expected future cash flows within the mortgage pool. The data described above is then input to an industry recognized model to assess the behavior of the particular security tranche owned by the Company. Significant inputs in this process include the structure of any subordination structures, if applicable, and are dictated by the structure of each particular security as laid out in the offering documents. The forecasted cash flows from the mortgage pools are input through the security structuring model to derive expected cash flows for the specific security owned by the Company to determine if the future cash flows are expected to exceed the book value of the security. The values for the significant inputs are updated on a regular basis.