INVESTMENT SECURITIES

12 Months Ended

Dec. 31, 2011

Investments, Debt and Equity Securities [Abstract]

Investment Securities

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 deposit and federal funds sold in compliance with various restrictions in the policy. As of December 31, 2011 and December 31, 2010, all investment securities were classified as available for sale.

Our available for sale securities totaled $37.6 million and $20.6 million as of December 31, 2011 and December 31, 2010, respectively. In the normal course of business, the Company pledges securities to the FFRB and to public housing authorities in NC and the NC Department of State Treasurer as collateral for public deposits.  The following table shows the amounts pledged as well as a letter of credit with the FHLB utilized in lieu of pledged investments for the public housing authorities and State Treasurer:

(Dollars in thousands)	December 31, 2011		December 31, 2010
Pledged to FRB	$	579	$	593
Pledged for public housing	5,318		414
Pledged to the NC State Treasurer	2,002		1,833
Letter of Credit with the FHLB	2,000		2,000

Our investment portfolio consists of the following securities:

• U.S. Government agency securities (“U.S. Agencies”)

• U.S. Government sponsored residential mortgage backed securities (“MBS”),

• Non-Government sponsored residential MBS, and

• Municipal securities (“Municipals”):

◦ NC

◦ Out of state

The amortized cost, gross unrealized gains and losses and fair values of investment securities at December 31, 2011 and December 31, 2010 were:

(Dollars in thousands)	Amortized Cost		Gross  Unrealized  Gains		Gross Unrealized  Losses			Fair Value
December 31, 2011
U.S. Agencies	$	483	$	—	$	—		$	483
Government sponsored MBS
Residential	30,399		416		(26		)	30,789
Non-Government sponsored MBS
Residential	133		2		—			135
Municipal securities
NC	3,505		197		—			3,702
Out of state	2,444		42		—			2,486
Total at December 31, 2011	$	36,964	$	657	$	(26	)	$	37,595
December 31, 2010
Government sponsored MBS
Residential	$	13,554	$	326	$	(168	)	$	13,712
Non-Government sponsored MBS
Residential	201		4		—			205
Municipal securities
NC	3,164		65		(43		)	3,186
Out of state	3,565		26		(67		)	3,524
Total at December 31, 2010	$	20,484	$	421	$	(278	)	$	20,627

Sales and calls of securities available for sale for the year ended December 31, 2011 and December 31, 2010 resulted in aggregate gross realized gains of $340 thousand and $26 thousand, respectively, and no realized losses.  

The amortized cost and estimated market values of securities as of December 31, 2011 by contractual maturities are shown below. Expected maturities may 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 earlier because of principal prepayments.

(Dollars in thousands)	December 31, 2011
	Fair Value		Amortized Cost
U.S. Agencies
Due after five years through ten years	$	483	$	483
Total US Agencies	$	483	$	483
Government sponsored MBS
Residential
Due after one year through five years	$	91	$	85
Due after five years through ten years	289		269
Due after ten years	30,409		30,045
Total government sponsored MBS	$	30,789	$	30,399
Non-Government sponsored MBS
Residential
Due after ten years	$	135	$	133
Municipals
NC
Due within one year	$	300	$	296
Due after one year through five years	2,505		2,364
Due after five years through ten years	897		845
Total NC municipals	$	3,702	$	3,505
Out of state
Due within one year	$	1,044	$	1,040
Due after one year through five years	1,442		1,404
Total out of state municipal bonds	$	2,486	$	2,444

As of December 31, 2011 and December 31, 2010, 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
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2011
Government sponsored MBS
Residential	$	9,669	$	(26	)	$	—	$	—	$	9,669	$	(26	)
Total at December 31, 2011	$	9,669	$	(26	)	$	—	$	—	$	9,669	$	(26	)

(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, 2010
Government sponsored MBS
Residential	$	7,725	$	(168	)	$	—	$	—	$	7,725	$	(168	)
Municipals
NC	1,687		(43		)	—		—		1,687		(43		)
Out of state	2,085		(67		)	—		—		2,085		(67		)
Total at December 31, 2010	$	11,497	$	(278	)	$	—	$	—	$	11,497	$	(278	)

All securities owned as of December 31, 2011 and December 31, 2010 are investment grade. The Company evaluates securities for other-than-temporary impairment, at least 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.  As of December 31, 2011 and December 31, 2010, the Company held 12 and 20 investment positions, respectively, with unrealized losses of $26.0 thousand and $278.0 thousand, respectively. These investments were in U.S. Government sponsored MBS, Municipals, and U.S. Agencies. 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 has determined that all declines in the market value of available for sale securities are not other-than-temporary, and will not be likely required to sell.