INVESTMENT SECURITIES

6 Months Ended

Jun. 30, 2014

Investments, Debt and Equity Securities [Abstract]

INVESTMENT SECURITIES

2. INVESTMENT SECURITIES

The main objectives of our investment strategy are to provide a source of liquidity while managing our interest rate risk, and to generate an adequate level of interest income without taking undue risks. Our investment policy permits investments in various types of securities, certificates of deposits and federal funds sold in compliance with various restrictions in the policy. As of June 30, 2014 and December 31, 2013, all investment securities were classified as available-for-sale.

Our available-for-sale securities totaled $69.5 million and $65.9 million as of June 30, 2014 and December 31, 2013, respectively. Securities with a fair value of $1.0 million were pledged to the Federal Reserve Bank of Richmond (“Federal Reserve Bank”) and an additional $4.4 million and $19.1 million in investments were pledged to public housing authorities in North Carolina and the North Carolina Department of State Treasurer as collateral for public deposits at June 30, 2014. Securities with a fair value of $1.0 million were pledged to the Federal Reserve Bank and an additional $3.5 million and $15.4 million in investments were pledged to public housing authorities in North Carolina and the North Carolina Department of State Treasurer as collateral for public deposits at December 31, 2013. Our investment portfolio consists of the following securities:

· U.S. government agency securities ,

· U.S. government sponsored residential mortgage backed securities (“MBS”), and

· Municipal securities (“Municipals”)

The amortized cost, gross unrealized gains and losses and fair values of investment securities at June 30, 2014 and December 31, 2013 were:

(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(Unaudited)
June 30, 2014
US government agencies	$	12,370	$	17	$	(96	)	$	12,291
Government sponsored MBS
Residential		56,223		256		(278	)		56,201
Municipal securities
North Carolina		1,015		12		(24	)		1,003
Total	$	69,608	$	285	$	(398	)	$	69,495
December 31, 2013
US government agencies	$	7,000		—	$	(234	)	$	6,766
Government sponsored MBS
Residential		58,086		118		(506	)		57,698
Municipals
North Carolina		1,485		21		(51	)		1,455
Total	$	66,571	$	139	$	(791	)	$	65,919

There were no gross realized gains or losses on sales or calls of securities during the three- or six-month periods ended June 30, 2014 or 2013.

The amortized cost and estimated market values of securities as of June 30, 2014 and December 31, 2013 by contractual maturities are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. MBS, which are not due at a single maturity date, are grouped based upon the final payment date. MBS may mature prior to the applicable final payment date because of principal prepayments.

	As of June 30, 2014
	Fair Value		Amortized Cost
Due within one year	$	1,989	$	2,000
Due after one year through five years		7,369		7,370
Due after five years through ten years		2,933		3,000
Total US government agencies	$	12,291	$	12,370
Residential
Due within one year	$	12,215	$	12,258
Due after one year through five years		24,504		24,537
Due after five years through ten years		12,490		12,462
Due after ten years		6,992		6,966
Total government sponsored MBS	$	56,201	$	56,223
North Carolina
Due within one year	$	166	$	162
Due after one year through five years		269		260
Due after five years through ten years		568		593
Total North Carolina municipal bonds	$	1,003	$	1,015

	As of December 31, 2013
	Fair Value		Amortized Cost
Due within one year	$	4,934	$	5,000
Due after one year through five years		1,832		2,000
Total US government agencies	$	6,766	$	7,000
Residential
Due within one year	$	12,090	$	12,156
Due after one year through five years		25,152		25,314
Due after five years through ten years		12,450		12,560
Due after ten years		8,006		8,056
Total government sponsored MBS	$	57,698	$	58,086
North Carolina
Due within one year	$	472	$	465
Due after one year through five years		437		423
Due after five years through ten years		546		597
Total North Carolina municipal bonds	$	1,455	$	1,485

All securities owned as of June 30, 2014 and December 31, 2013 are investment grade. The unrealized losses were attributable to changes in market interest rates. The Company evaluates securities for other than temporary impairment on a quarterly basis. Consideration is given to the financial condition and near-term prospects of the issuer, the length of time and extent to which the fair value has been less than cost, and our intent and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Based on these evaluations, the Company did not deem any securities to be impaired during 2013 or the first six months of 2014.

As of June 30, 2014 and December 31, 2013, the Company held 56 and 68 investment positions, respectively, with unrealized losses of $398 thousand and $791 thousand, respectively. These investments were in U.S. government agencies, Government sponsored MBS and Municipals. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysts’ reports. Management had determined that all declines in market values of available-for-sale securities are not other-than-temporary, and the Company will not likely be required to sell these securities.

As of June 30, 2014 and December 31, 2013, the fair value of securities with gross unrealized losses by length of time that the individual securities have been in an unrealized loss position is as follows:

(Dollars in thousands)	Less Than 12 Months					12 Months or Greater					Total
(Unaudited)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
June 30, 2014
US government agencies	$	5,843	$	(27	)	$	1,931	$	(69	)	$	7,774	$	(97	)
Government sponsored MBS
Residential		12,880		(66	)		15,198		(212	)		28,078		(278	)
Municipals
North Carolina		568		(24	)		—		—			568		(24	)
Total	$	19,291	$	(117	)	$	17,129	$	(281	)	$	36,420	$	(398	)

(Dollars in thousands)	Less Than 12 Months					12 Months or Greater				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2013
US government agencies	$	6,766	$	(234	)	$	—	$	—	$	6,766	$	(234	)
Government sponsored MBS
Residential		46,373		(506	)		20		—		46,393		(506	)
Municipals
North Carolina		546		(51	)		—		—		546		(51	)
Total	$	53,685	$	(791	)	$	20	$	—	$	53,705	$	(791	)