NOTE 3 - INVESTMENT SECURITIES

The following table summarizes the amortized cost and fair value of the available-for-sale and held-to-maturity investment securities portfolio as of September 30, 2014 and December 31, 2013 and the corresponding amounts of unrealized gains and losses recognized in accumulated other comprehensive income (loss):

(Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
September 30, 2014
Available-for-sale:
U.S. government-sponsored entities and agencies	$	7,300	$	162	$	(39	)	$	7,423
State and political subdivisions		7,013		542		-			7,555
Mortgage-backed securities - residential		32,311		829		(71	)		33,069
Collateralized mortgage obligations		31,747		135		(622	)		31,260
Corporate bonds		3,028		90		-			3,118
Total available-for-sale securities	$	81,399	$	1,758	$	(732	)	$	82,425

	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
December 31, 2013
Available-for-sale:
U.S. government-sponsored entities and agencies	$	8,343	$	123	$	(70	)	$	8,396
State and political subdivisions		7,762		342		(67	)		8,037
Mortgage-backed securities - residential		32,709		686		(170	)		33,225
Collateralized mortgage obligations		32,791		143		(956	)		31,978
Corporate bonds		3,037		104		(6	)		3,135
Total available-for-sale securities	$	84,642	$	1,398	$	(1,269	)	$	84,771

As of September 30, 2014 and December 31, 2013, the Company’s investment securities portfolio did not include any held-to-maturity securities.

The following table summarizes the proceeds from sales of available-for-sale securities and the associated gains and losses for the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30,					Nine Months Ended September 30,
(Dollars in thousands)	2014		2013			2014		2013
Gross gains	$	-	$	522		$	-	$	601
Gross losses		-		(131	)		-		(164	)
Net gain	$	-	$	391		$	-	$	437
Proceeds	$	-	$	10,267		$	-	$	14,434

The amortized cost and fair value of the investment securities portfolio are presented below in order of contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities – residential and collateralized mortgage obligations, are shown separately.

(Dollars in thousands) September 30, 2014	Amortized Cost		Fair Value
Available-for-sale:
Within one year	$	500	$	508
One to five years		2,383		2,469
Five to ten years		3,897		3,952
Beyond ten years		10,561		11,167
Mortgage-backed securities – residential		32,311		33,069
Collateralized mortgage obligations		31,747		31,260
Total	$	81,399	$	82,425

The following table summarizes the investment securities with unrealized losses as of September 30, 2014 and December 31, 2013 listed by aggregated major security type and length of time in a continuous unrealized loss position:

	Less Than 12 Months					12 Months or Longer					Total
(Dollars in thousands) September 30, 2014	Fair Value		Unrealized losses			Fair Value		Unrealized losses			Fair Value		Unrealized losses
Available-for-sale:
U.S. government-sponsored entities and agencies	$	-	$	-		$	961	$	(39	)	$	961	$	(39	)
State and political subdivisions		-		-			-		-			-		-
Mortgage-backed securities – residential		4,960		(19	)		2,471		(52	)		7,431		(71	)
Collateralized mortgage obligations		8,282		(48	)		11,615		(574	)		19,897		(622	)
Corporate bonds		-		-			-		-			-		-
Total available-for-sale securities	$	13,242	$	(67	)	$	15,047	$	(665	)	$	28,289	$	(732	)

	Less Than 12 Months					12 Months or Longer					Total
December 31, 2013	Fair Value		Unrealized losses			Fair Value		Unrealized losses			Fair Value		Unrealized losses
Available-for-sale:
U.S. government-sponsored entities and agencies	$	1,828	$	(70	)	$	-	$	-		$	1,828	$	(70	)
State and political subdivisions		1,015		(67	)		-		-			1,015		(67	)
Mortgage-backed securities – residential		7,025		(170	)		-		-			7,025		(170	)
Collateralized mortgage obligations		17,686		(674	)		5,131		(282	)		22,817		(956	)
Corporate bonds		994		(6	)		-		-			994		(6	)
Total available-for-sale securities	$	28,548	$	(987	)	$	5,131	$	(282	)	$	33,679	$	(1,269	)

As of September 30, 2014 and December 31, 2013, the Company’s security portfolio consisted of $82,425 and $84,771, respectively, in available-for-sale securities, of which $28,289 and $33,679 were in an unrealized loss position for the related periods. The unrealized losses as of September 30, 2014 and December 31, 2013 were related to all securities types held by the Company, as discussed below.

U.S. Government-Sponsored Entities and Agency Securities (“U.S. Agency Securities”):

All of the U.S. Agency Securities held by the Company were issued by U.S. government-sponsored entities and agencies. As of September 30, 2014 and December 31, 2013, the number of U.S. Agency Securities with unrealized losses were one and two, respectively. As of September 30, 2014 and December 31, 2013, these securities had depreciated 3.89% and 3.67%, respectively, from the Company’s amortized cost basis. The decline in fair value was attributable to changes in interest rates, not credit quality.

State and Political Securities (“Municipal Bonds”):

All of the Municipal Bonds held by the Company were issued by a state, city or other local government and represent general obligations of the issuer that are secured by specified revenues. As of September 30, 2014 and December 31, 2013, Municipal Bonds with unrealized losses were zero and two, respectively. As of September 30, 2014 and December 31, 2013, these securities had depreciated 0.00% and 6.16%, respectively, from the Company’s amortized cost basis. The decline in fair value was primarily attributable to changes in interest rates rather than the ability or willingness of the municipality to repay.

Mortgage-backed Securities – Residential (“Mortgage-backed Securities”):

All of the Mortgage-backed Securities held by the Company were issued by U.S. government-sponsored entities and agencies, primarily Ginnie Mae and Fannie Mae, institutions which have the full faith and credit of the U.S. government. As of September 30, 2014 and December 31, 2013, Mortgage-backed Securities with unrealized losses were ten and eight, respectively. As of September 30, 2014 and December 31, 2013, these securities had depreciated 0.94% and 2.37%, respectively, from the Company’s amortized cost basis. The decline in fair value was attributable to changes in interest rates, not credit quality.

Collateralized Mortgage Obligations:

All of the collateralized mortgage obligation securities held by the Company were issued by U.S. government-sponsored entities and agencies, primarily Ginnie Mae, an institution which has the full faith and credit of the U.S. government. As of September 30, 2014 and December 31, 2013, collateralized mortgage obligations with unrealized losses were eighteen and seventeen, respectively. As of September 30, 2014 and December 31, 2013, these securities had depreciated 3.03% and 4.02%, respectively, from the Company’s amortized cost basis. The decline in fair value was attributable to changes in interest rates, not credit quality.

Corporate Bonds:

All of the corporate bonds held by the Company were debt obligations issued by corporations, with no inherent claim to ownership. As of September 30, 2014 and December 31, 2013, corporate bonds with unrealized losses were zero and one, respectively. As of September 30, 2014 and December 31, 2013, these securities had depreciated 0.00% and 0.61%, respectively, from the Company’s amortized cost basis. The decline in fair value was attributable to changes in interest rates, not the credit quality of the issuer.

Other-Than-Temporary Impairment

Because the Company does not have the intent to sell these securities, and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these to be other-than-temporarily impaired as of September 30, 2014 and December 31, 2013.

For the nine months ended September 30, 2014 and 2013, there were no credit losses recognized in earnings related to investment securities.