NOTE 10 – SECURITIES


	June 30, 2014
	Amortized	Gross Unrealized	Gross Unrealized	Estimated
(dollars in thousands)	Cost	Gains	Losses	Fair Value
Securities available for sale (AFS)
Asset-backed securities issued by GSEs
Residential Mortgage Backed Securities ("MBS")	$ 44	$ 7	$ -	$ 51
Residential Collateralized Mortgage Obligations ("CMOs")	38,807	24	1,269	37,562
Corporate equity securities	37	5	-	42
Bond mutual funds	4,151	99	-	4,250
Total securities available for sale	$ 43,039	$ 135	$ 1,269	$ 41,905

Securities held to maturity (HTM)
Asset-backed securities issued by GSEs:
Residential MBS	$ 21,118	$ 674	$ 125	$ 21,667
Residential CMOs	53,176	291	788	52,679
Asset-backed securities issued by Others:
Residential CMOs	2,503	138	118	2,523
Total debt securities held to maturity	76,797	1,103	1,031	76,869

U.S. government obligations	750	-	-	750
Total securities held to maturity	$ 77,547	$ 1,103	$ 1,031	$ 77,619


	December 31, 2013
	Amortized	Gross Unrealized	Gross Unrealized	Estimated
(dollars in thousands)	Cost	Gains	Losses	Fair Value
Securities available for sale (AFS)
Asset-backed securities issued by GSEs
Residential MBS	$ 176	$ 17	$ -	$ 193
Residential CMOs	45,299	63	1,479	43,883
Corporate equity securities	37	4	-	41
Bond mutual funds	4,108	22	-	4,130
Total securities available for sale	$ 49,620	$ 106	$ 1,479	$ 48,247

Securities held to maturity (HTM)
Asset-backed securities issued by GSEs:
Residential MBS	$ 22,662	$ 625	$ 214	$ 23,073
Residential CMOs	59,869	265	943	59,191
Asset-backed securities issued by Others:
Residential CMOs	3,120	114	157	3,077
Total debt securities held to maturity	85,651	1,004	1,314	85,341

U.S. government obligations	750	-	-	750
Total securities held to maturity	$ 86,401	$ 1,004	$ 1,314	$ 86,091

At June 30, 2014, certain asset-backed securities with an amortized cost of $13.6 million were pledged to secure certain deposits. At June 30, 2014, asset-backed securities with an amortized cost of $2.5 million were pledged as collateral for advances from the Federal Home Loan Bank (“FHLB”) of Atlanta.

At June 30, 2014, 98% of the asset-backed securities portfolio was rated AAA by Standard & Poor’s or the equivalent credit rating from another major rating agency. AFS asset-backed securities issued by government sponsored entities (“GSEs”) had an average life of 4.08 years and an average duration of 3.76 years and are guaranteed by their issuer as to credit risk. HTM asset-backed securities issued by GSEs had an average life of 4.11 years and an average duration of 3.86 years and are guaranteed by their issuer as to credit risk.

At December 31, 2013, 98% of the asset-backed securities portfolio was rated AAA by Standard & Poor’s or the equivalent credit rating from another major rating agency. AFS asset-backed securities issued by GSEs had an average life of 4.45 years and average duration of 4.45 years and are guaranteed by their issuer as to credit risk. HTM asset-backed securities issued by GSEs had an average life of 4.49 years and average duration of 4.16 years and are guaranteed by their issuer as to credit risk.

We believe that AFS securities with unrealized losses will either recover in market value or be paid off as agreed. The Company intends to, and has the ability to, hold these securities until recovery of the market value which may be the maturity. We believe that the losses are the result of general perceptions of safety and creditworthiness of the entire sector and a general disruption of orderly markets in the asset class.

Management has the ability and intent to hold the HTM securities with unrealized losses until they mature, at which time the Company will receive full value for the securities. Because our intention is not to sell the investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, management considers the unrealized losses in the held-to-maturity portfolio to be temporary.

No charges related to other-than-temporary impairment were made during the six months ended June 30, 2014 and 2013. During the year ended December 31, 2009, the Company recorded a charge of $148,000 related to other-than-temporary impairment on a single HTM CMO issue. At June 30, 2014, the CMO issue had a par value of $830,000, a market fair value of $598,000 and a carrying value of $460,000 and an average life of 6.85 years and an average duration of 4.39 years.

During the three months ended March 31, 2014, the Company recognized net gains on the sale of securities of $24,000. The Company sold five AFS securities with a carrying value of $2.1 million and ten HTM securities with aggregate carrying values of $3.2 million, recognizing gains of $8,000 and $16,000, respectively. The sale of HTM securities was permitted under ASC 320 “Investments - Debt and Equity Securities.” ASC 320 permits the sale of HTM securities for certain changes in circumstances. The Company sold the HTM positions utilizing the safe harbor rule that allows for the sale of HTM securities that have principal payments paid down to less than 15% of original purchased par. ASC 320 10-25-15 indicates that a sale of a debt security after a substantial portion of the principal has been collected is equivalent to holding the security to maturity. There were no sales of AFS and HTM securities during the three months ended June 30, 2014 and the six months ended June 30, 2013.

AFS Securities

Gross unrealized losses and estimated fair value by length of time that the individual AFS securities have been in a continuous unrealized loss position at June 30, 2014 were as follows:

June 30, 2014

Less Than 12

More Than 12

Months

Total

(dollars in thousands)

Fair Value

Unrealized Loss

Fair Value

Unrealized Loss

Fair Value

Unrealized Losses

Asset-backed securities
issued by GSEs

$ 4,614

$ 1

$ 29,572

$ 1,268

$ 34,187

$ 1,269

At June 30, 2014, the AFS investment portfolio had an estimated fair value of $41.9 million, of which $34.2 million or 82% of the securities had some unrealized losses from their amortized cost. The securities with unrealized losses were CMOs issued by GSEs.

AFS securities issued by GSEs are guaranteed by the issuer. Total unrealized losses on the asset-backed securities issued by GSEs were $1.3 million or 3.3% of the portfolio amortized cost of $38.9 million. AFS asset-backed securities issued by GSEs with unrealized losses had an average life of 4.18 years and an average duration of 3.85 years. We believe that the securities will either recover in market value or be paid off as agreed.

Gross unrealized losses and estimated fair value by length of time that the individual AFS securities have been in a continuous unrealized loss position at December 31, 2013 were as follows:

December 31, 2013

Less Than 12

More Than 12

Months

Total

(dollars in thousands)

Fair Value

Unrealized Loss

Fair Value

Unrealized Loss

Fair Value

Unrealized Losses

Asset-backed securities
issued by GSEs

$ 28,669

$ 1,016

$ 8,352

$ 463

$ 37,021

$ 1,479

At December 31, 2013, the AFS investment portfolio had an estimated fair value of $48.2 million, of which $37.0 million or 77% of the securities had some unrealized losses from their amortized cost. The securities with unrealized losses are predominantly CMOs issued by GSEs.

AFS securities issued by GSEs are guaranteed by the issuer. Total unrealized losses on the asset-backed securities issued by GSEs were $1.5 million or 3.3% of the portfolio amortized cost of $45.5 million. AFS asset-backed securities issued by GSEs with unrealized losses had an average life of 4.71 years and an average duration of 4.25 years.

HTM Securities

Gross unrealized losses and estimated fair value by length of time that the individual HTM securities have been in a continuous unrealized loss position at June 30, 2014 were as follows:


June 30, 2014	Less Than 12		More Than 12
	Months		Months		Total
(dollars in thousands)	Fair Value	Unrealized Loss	Fair Value	Unrealized Loss	Fair Value	Unrealized Losses
Asset-backed securities issued by GSEs	$ 4,079	$ 45	$ 25,716	$ 868	$ 29,795	$ 913
Asset-backed securities issued by other	-	-	1,832	118	1,832	118
	$ 4,079	$ 45	$ 27,548	$ 986	$ 31,627	$ 1,031

At June 30, 2014, the HTM investment portfolio had an estimated fair value of $77.6 million, of which $31.6 million or 41%, of the securities had some unrealized losses from their amortized cost. Of these securities, $29.8 million or 94%, were asset-backed securities issued by GSEs and the remaining $1.8 million or 6%, were asset-backed securities issued by others.

HTM securities issued by GSEs are guaranteed by the issuer. Total unrealized losses on the asset-backed securities issued by GSEs were $913,000 or 1.2% of the portfolio amortized cost of $74.3 million. HTM asset-backed securities issued by GSEs with unrealized losses had an average life of 5.01 years and an average duration of 4.60 years. We believe that the securities will either recover in market value or be paid off as agreed. The Company intends to, and has the ability to, hold these securities to maturity.

HTM asset-backed securities issued by others are collateralized mortgage obligation securities. All of the securities have credit support tranches that absorb losses prior to the tranches that the Company owns. The Company reviews credit support positions on its securities regularly. Total unrealized losses on the asset-backed securities issued by others were $118,000 or 4.7% of the portfolio amortized cost of $2.5 million. HTM asset-backed securities issued by others with unrealized losses have an average life of 3.96 years and an average duration of 3.40 years.

Gross unrealized losses and estimated fair value by length of time that the individual HTM securities have been in a continuous unrealized loss position at December 31, 2013 were as follows:


December 31, 2013	Less Than 12		More Than 12
	Months		Months		Total
(dollars in thousands)	Fair Value	Unrealized Loss	Fair Value	Unrealized Loss	Fair Value	Unrealized Losses
Asset-backed securities issued by GSEs	$ 36,705	$ 1,000	$ 6,832	$ 157	$ 43,537	$ 1,157
Asset-backed securities issued by other	97	-	2,399	157	2,496	157
	$ 36,802	$ 1,000	$ 9,231	$ 314	$ 46,033	$ 1,314

At December 31, 2013, the HTM investment portfolio had an estimated fair value of $86.1 million, of which $46.0 million, or 53% of the securities, had some unrealized losses from their amortized cost. Of these securities, $43.5 million, or 95%, are mortgage-backed securities issued by GSEs and the remaining $2.5 million, or 5%, were asset-backed securities issued by others.

HTM securities issued by GSEs are guaranteed by the issuer. Total unrealized losses on the asset-backed securities issued by GSEs were $1.2 million or 1.4% of the portfolio amortized cost of $82.5 million. HTM asset-backed securities issued by GSEs with unrealized losses had an average life of 5.24 years and an average duration of 4.80 years.

HTM asset-backed securities issued by others are collateralized mortgage obligation securities. All of the securities have credit support tranches that absorb losses prior to the tranches that the Company owns. The Company reviews credit support positions on its securities regularly. Total unrealized losses on the asset-backed securities issued by others were $157,000, or 5.0% of the portfolio amortized cost of $3.1 million. HTM asset-backed securities issued by others with unrealized losses had an average life of 5.17 years and an average duration of 4.73 years.

Credit Quality of Asset-Backed Securities

The tables below present the Standard & Poor’s or equivalent credit rating from other major rating agencies for AFS and HTM asset-backed securities issued by GSEs and others at June 30, 2014 and December 31, 2013 by carrying value. The Company considers noninvestment grade securities rated BB+ or lower as classified assets for regulatory and financial reporting. GSE asset-backed security downgrades by Standard and Poor’s were treated as AAA based on regulatory guidance.



June 30, 2014		December 31, 2013
Credit Rating	Amount	Credit Rating	Amount
(dollars in thousands)
AAA	$ 111,908	AAA	$ 126,607
BBB	503	BBB	584
BBB-	-	BBB-	98
BB	766	BB	813
B+	-	B+	66
CCC+	773	CCC+	1,092
CCC	460	CCC	467
Total	$ 114,410	Total	$ 129,727