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 March 31, 2015 and December 31, 2014, all investment securities were classified as available-for-sale.

Our available-for-sale securities totaled $74.7 million and $69.7 million as of March 31, 2015 and December 31, 2014, respectively. Securities with a fair value of $1.0 million were pledged to the Federal Reserve Bank of Richmond (“FRB”) and an additional $3.9 million and $17.4 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 March 31, 2015. Securities with a fair value of $1.0 million were pledged to the FRB and an additional $3.8 million and $18.1 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 December 31, 2014. Our investment portfolio consists of the following securities:

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U.S. government agency securities (“U.S. Agencies”) ,

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

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Municipal securities (“Municipals”).

The amortized cost, gross unrealized gains and losses and fair values of investment securities at March 31, 2015 and December 31, 2014 were:

(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(Unaudited)
March 31, 2015
U.S. Agencies	$	29,374	$	70	$	(29	)	$	29,415
MBS
Residential		44,139		331		(240	)		44,230
Municipals
North Carolina		1,006		9		—			1,015
Total	$	74,519	$	410	$	(269	)	$	74,660

December 31, 2014
U.S. Agencies	$	12,373	$	26	$	(60	)	$	12,339
MBS
Residential		56,350		281		(276	)		56,355
Municipals
North Carolina		1,009		9		(9	)		1,009
Total	$	69,732	$	316	$	(345	)	$	69,703

During the three months ended March 31, 2015, there were $112 thousand gross realized gains and $83 thousand gross realized losses on sales or calls of securities compared to none during the comparable period of 2014.

The amortized cost and estimated market values of securities as of March 31, 2015 and December 31, 2014 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.

(Dollars in thousands)	As of March 31, 2015
(Unaudited)	Fair Value		Amortized Cost
U.S. Agencies
Due within one year	$	1,507	$	1,497
Due after one year through five years		21,658		21,627
Due after five years through ten years		6,250		6,250
Total U.S. Agencies	$	29,415	$	29,374

MBS
Residential
Due within one year	$	8,238	$	8,239
Due after one year through five years		19,777		19,746
Due after five years through ten years		10,974		10,926
Due after ten years		5,241		5,228
Total MBS	$	44,230	$	44,139

Municipals
North Carolina
Due within one year	$	160	$	160
Due after one year through five years		266		260
Due after five years through ten years		589		586
Total Municipals	$	1,015	$	1,006

(Dollars in thousands)	As of December 31, 2014
	Fair Value		Amortized Cost
U.S. Agencies
Due within one year	$	2,498	$	2,499
Due after one year through five years		7,887		7,874
Due after five years through ten years		1,954		2,000
Total U.S. Agencies	$	12,339	$	12,373

MBS
Residential
Due within one year	$	10,114	$	10,139
Due after one year through five years		24,003		24,018
Due after five years through ten years		13,803		13,771
Due after ten years		8,435		8,422
Total MBS	$	56,355	$	56,350

Municipals
North Carolina
Due within one year	$	162	$	161
Due after one year through five years		268		260
Due after five years through ten years		579		588
Total Municipals	$	1,009	$	1,009

All securities owned as of March 31, 2015 and December 31, 2014 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 2014 or the first three months of 2015.

As of March 31, 2015 and December 31, 2014, the Company held 54 and 59 investment positions, respectively, with unrealized losses of $269 thousand and $345 thousand, respectively. These investments were in U.S. Agencies, 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 March 31, 2015 and December 31, 2014, the fair value of securities with gross unrealized losses by length of time that the individual securities have been in an unrealized loss position was 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
March 31, 2015
U.S. Agencies	$	8,982	$	(18	)	$	989	$	(11	)	$	9,971	$	(29	)
MBS
Residential		9,234		(74	)		10,929		(166	)		20,163		(240	)
Total	$	18,216	$	(92	)	$	11,918	$	(177	)	$	30,134	$	(269	)

(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, 2014
U.S. Agencies	$	5,982	$	(14	)	$	1,954	$	(46	)	$	7,936	$	(60	)
MBS
Residential		12,594		(73	)		13,476		(203	)		26,070		(276	)
Municipals
North Carolina		—		—			579		(9	)		579		(9	)
Total	$	18,576	$	(87	)	$	16,009	$	(258	)	$	34,585	$	(345	)