Note 3 - Available-For-Sale Securities

The following table summarizes the amortized cost and fair value of the available-for sale securities portfolio at June 30, 2014 and December 31, 2013 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss:

	(Dollars in Thousands)
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2014
U. S. government agencies and government sponsored entities	$	5,991	$	—	$	(67	)	$	5,924
State and municipal	20,614		819		(131		)	21,302
Agency mortgage-backed securities: residential	25,544		267		(71		)	25,740
Trust preferred security	1,874		—		(434		)	1,440
Corporate Bonds	1,000		—		(1		)	999
Total Available-for-Sale Securities	$	55,023	$	1,086	$	(704	)	$	55,405

December 31, 2013
U. S. government agencies and government sponsored entities	$	6001	$	—	$	(182	)	$	5,819
State and municipal	19,394		547		(265		)	19,676
Agency mortgage-backed securities: residential	23,825		172		(253		)	23,744
Trust preferred security	1,872		—		(472		)	1,400
Corporate bond	1,000		—		(6		)	994
Total Available-for-Sale Securities	$	52,092	$	719	$	(1,178	)	$	51,633

The amortized cost and fair value of investment securities at June 30, 2014 by contractual maturity were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

	June 30, 2014 (Dollars in Thousands)
	Available-For-Sale
	Amortized Cost		Fair Value
Due in one year or less	534		543
Due from one to five years	8,091		8,251
Due from five to ten years	11,978		12,226
Due after ten years	8,876		8,645
Agency mortgage-backed: residential	25,544		25,740
Total	$	55,023	$	55,405

The following table summarizes the investment securities with unrealized losses at June 30, 2014 and December 31, 2013, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position:

	(Dollars in Thousands)
	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
June 30, 2014:
U.S. government agencies and government sponsored entities	$	990	$	(2	)	$	4,934	$	(65	)	$	5,924	$	(67	)
State and municipal	1,736		(8		)	2,489		(123		)	4,225		(131		)
Agency mortgage-backed: residential	7,984		(21		)	1751		(50		)	9,735		(71		)
Trust preferred security	—		—			1,440		(434		)	1,440		(434		)
Corporate Bonds	999		(1		)	—		—			999		(1		)
Total temporarily impaired	$	11,709	$	(32	)	$	10,614	$	(672	)	$	22,323	$	(704	)

	(Dollars in Thousands)
	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
December 31, 2013:
U.S. government agencies and government sponsored entities	$	4,882	$	(119	)	$	937	$	(63	)	$	5,819	$	(182	)
State and municipal	3,988		(128		)	844		(137		)	4,832		(265		)
Agency mortgage-backed: residential	12,977		(253		)	—		—			12,977		(253		)
Trust preferred security	—		—			1,400		(472		)	1,400		(472		)
Corporate bonds	994		(6		)	—		—			994		(6		)
Total temporarily impaired	$	22,841	$	(506	)	$	3,181	$	(672	)	$	26,022	$	(1,178	)

Other-Than-Temporary-Impairment

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. Investment securities classified as available-for-sale are generally evaluated for OTTI under ASC Topic 320, “Investments - Debt and Equity Securities.”

In determining OTTI under the ASC Topic 320 model, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

As of June 30, 2014, our securities portfolio consisted of $55.4 million fair value of securities, $22.3 million, or 23 securities, of which were in an unrealized loss position.

All rated securities are investment grade. For those that are not rated, the financial condition has been evaluated and no adverse conditions were identified related to repayment. Declines in fair value are a function of rate differences in the market and market illiquidity. The Company does not intend or is not expected to be required to sell these securities before recovery of their amortized cost basis.

Approximately 60% of the Company’s unrealized losses 12 months or more relate to its investment in a single trust preferred security. The security is a single-issuer trust preferred that is not rated. While market conditions have allowed some increase in the fair market value of the trust preferred security at June 30, 2014, a full recovery has not yet occurred. No impairment charge is being taken as no loss of principal or interest is anticipated. All principal and interest payments are being received as scheduled. On a quarterly basis, we evaluate the creditworthiness of the issuer, a bank holding company with operations in the state of Kentucky. Based on the issuer’s continued profitability and well-capitalized position, we do not deem that there is credit loss. The decline in fair value is primarily attributable to illiquidity affecting these markets and not the expected cash flows of the individual securities. We have evaluated the financial condition and near term prospects of the issuer and expect to fully recover our cost basis. This security continues to pay interest as agreed and future payments are expected to be made as agreed. This security is not considered to be other-than-temporarily impaired.