INVESTMENT SECURITIES

6 Months Ended

Jun. 30, 2012

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 June 30, 2012, and December 31, 2011, all investment securities were classified as available for sale.

Our available for sale securities totaled $55.3 million and $37.6 million as of June 30, 2012 and December 31, 2011, respectively. Securities with a fair value of $0.3 million were pledged to the Federal Reserve Bank of Richmond (“FRB”) and an additional $5.5 million and $2.5 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, 2012.  Securities with a fair value of $0.6 million were pledged to the FRB and an additional $5.3 million and $2.0 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, 2011.  

As a consequence of recent decreases in the loan portfolio, the Company has started an investment purchase program, investing mainly in high-quality, variable rate U.S. Government sponsored mortgage backed securities with expected durations of five years or less.

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”)

The amortized cost, gross unrealized gains and losses and fair values of investment securities at June 30, 2012 and December 31, 2011 were:

(Dollars in thousands)	Amortized Cost		Gross  Unrealized  Gains		Gross Unrealized  Losses			Fair Value
June 30, 2012
U.S. Agencies	$	406	$	—	$	—		$	406
Government sponsored MBS
Residential	51,209		449		(64		)	51,594
Non-Government sponsored MBS
Residential	112		2		—			114
Municipals
North Carolina	2,972		183		(13		)	3,142
Total at June 30, 2012	$	54,699	$	634	$	(77	)	$	55,256
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
Municipals
North Carolina	3,505		197		—			3,702
Out of state	2,444		42		—			2,486
Total at December 31, 2011	$	36,964	$	657	$	(26	)	$	37,595

Sales and calls of securities available for sale for the six months ended June 30, 2012, and June 30, 2011, resulted in aggregate gross realized gains of $189.0 thousand and $38.0 thousand, respectively, and no realized losses.  During the three months ended June 30, 2012 and June 30, 2011 the Company realized gross gains of $134.0 thousand and $25.0 thousand, respectively, from the sales of securities.

In the first quarter of 2012, the Company sold all of its remaining out of state municipal securities.

The amortized cost and estimated market value of securities as of June 30, 2012 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)	June 30, 2012
	Fair Value		Amortized Cost
U.S. Agencies
Due after five years through ten years	$	406	$	406
Total US Agencies	$	406	$	406
Government sponsored MBS
Residential
Due after one year through five years	$	68	$	64
Due after five years through ten years	316		295
Due after ten years	51,210		50,850
Total government sponsored MBS	$	51,594	$	51,209
Non-Government sponsored MBS
Residential
Due after ten years	$	114	$	112
Municipals
North Carolina
Due after one year through five years	2,545		2,362
Due after five years through ten years	597		610
Total North Carolina municipals	$	3,142	$	2,972

As of June 30, 2012 and December 31, 2011, 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
June 30, 2012
Government sponsored MBS
Residential	$	17,845	$	(64	)	$	—	$	—	$	17,845	$	(64	)
Municipals
North Carolina	597		(13		)	—		—		597		(13		)
Total at June 30, 2012	$	18,442	$	(77	)	$	—	$	—	$	18,442	$	(77	)

(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	)

All securities owned as of June 30, 2012, and December 31, 2011, are investment grade. At least quarterly, the Company evaluates securities for other-than-temporary impairment. 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 June 30, 2012 and December 31, 2011, the Company held 17 and 12 investment positions, respectively, with unrealized losses of $77 thousand and $26 thousand, respectively. These investments were in Municipals, U.S. Government sponsored MBS, and non-Government sponsored MBS. 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 the Company has the intent and ability to hold these securities until the market recovers.

The Company owns stock in the Federal Home Loan Bank of Atlanta ("FHLB"), classified on the Consolidated Balance Sheets as Other Invested Assets, which is evaluated on a quarterly basis for other-than-temporary impairment.  The FHLB has been issuing dividends and repurchasing excess stock on a pro-rata basis for several quarters.  The Company believes that the investment in FHLB stock is not other-than-temporarily-impaired.