Note 5. Investments

The amortized cost and estimated fair value of investment securities available for sale as of March 31, 2014 and December 31, 2013 is as follows:



(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
March 31, 2014	cost		gains		losses		value
Equity securities	$	1,472	$	544	$	-	$	2,016
U.S. Government agency securities		14,547		88		(96)		14,539
Municipal securities		55,531		1,568		(976)		56,123
Corporate debt securities		1,001		1		-		1,002
Trust preferred securities		5,928		-		(833)		5,095
Agency mortgage-backed securities		80,500		826		(444)		80,882
Private-label mortgage-backed securities		1,918		48		(44)		1,922
Asset-backed securities		50		-		(3)		47
	$	160,947	$	3,075	$	(2,396)	$	161,626



(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2013	cost		gains		losses		value
Equity securities	$	1,472	$	499	$	(1)	$	1,970
U.S. Government agency securities		11,771		94		(114)		11,751
Municipal securities		56,861		1,400		(1,404)		56,857
Corporate debt securities		1,002		-		(1)		1,001
Trust preferred securities		5,922		-		(871)		5,051
Agency mortgage-backed securities		81,352		726		(1,051)		81,027
Private-label mortgage-backed securities		1,984		16		(31)		1,969
Asset-backed securities		51		-		(3)		48
	$	160,415	$	2,735	$	(3,476)	$	159,674

At March 31, 2014 and December 31, 2013, the fair value of investment securities pledged to secure public funds, trust balances, repurchase agreements, deposit and other obligations totaled $104.8 million and $107.6 million, respectively.

The amortized cost and estimated fair value of debt securities at March 31, 2014, by contractual maturity are shown below. Actual maturities may differ from contractual maturities because of prepayment or call options embedded in the securities.





(Dollars in thousands)	Amorized cost		Fair value
Due in one year or less	$	1,446	$	1,458
Due after one year through five years		13,149		13,676
Due after five years through ten years		26,751		26,868
Due after ten years		35,711		34,804
		77,057		76,806
Mortgage-backed securities		82,418		82,804
	$	159,475	$	159,610

The following table provides additional detail about trust preferred securities as of March 31, 2014:

Trust Preferred Securities


(Dollars in thousands)
Deal Name	Single Issuer or Pooled	Class	Amortized Cost		Fair Value		Gross Unrealized Gain (Loss)		Lowest Credit Rating Assigned	Number of Banks Currently Performing	Deferrals and Defaults as % of Original Collateral	Expected Deferral/ Defaults as a Percentage of Remaining Performing Collateral

Huntington Cap Trust	Single	Preferred Stock	$	937	$	811	$	(126)	BB+	1	None	None
Huntington Cap Trust II	Single	Preferred Stock		886		780		(106)	BB+	1	None	None
BankAmerica Cap III	Single	Preferred Stock		961		795		(166)	BB+	1	None	None
Wachovia Cap Trust II	Single	Preferred Stock		276		245		(31)	BBB+	1	None	None
Corestates Captl Tr II	Single	Preferred Stock		933		830		(103)	BBB+	1	None	None
Chase Cap VI JPM	Single	Preferred Stock		961		830		(131)	BBB	1	None	None
Fleet Cap Tr V	Single	Preferred Stock		974		804		(170)	BB+	1	None	None
			$	5,928	$	5,095	$	(833)

The following table provides additional detail about private label mortgage-backed securities as of March 31, 2014:

Private Label Mortgage Backed Securities


(Dollars in thousands)						Gross					Cumulative
	Origination	Amortized		Fair		Unrealized		Collateral	Lowest Credit	Credit	OTTI
Description	Date	Cost		Value		Gain (Loss)		Type	Rating Assigned	Support %	Charges
RALI 2004-QS4 A7	3/1/2004	$	157	$	164	$	7	ALT A	BBB+	12.55	$	-
MALT 2004-6 7A1	6/1/2004		426		446		20	ALT A	CCC	14.26		-
RALI 2005-QS2 A1	2/1/2005		318		331		13	ALT A	C	5.82		10
RALI 2006-QS4 A2	4/1/2006		593		565		(28)	ALT A	D	-		293
GSR 2006-5F 2A1	5/1/2006		94		102		8	Prime	D	-		15
RALI 2006-QS8 A1	7/28/2006		330		314		(16)	ALT A	D	-		197
		$	1,918	$	1,922	$	4				$	515

Impairment:

The investment portfolio contained 84 securities with $68.8 million of temporarily impaired fair value and $2.4 million in unrealized losses at March 31, 2014.

For securities with an unrealized loss, Management applies a systematic methodology in order to perform an assessment of the potential for other-than-temporary impairment. In the case of debt securities, investments considered for other-than-temporary impairment: (1) had a specified maturity or repricing date; (2) were generally expected to be redeemed at par, and (3) were expected to achieve a recovery in market value within a reasonable period of time. In addition, the Bank considers whether it intends to sell these securities or whether it will be forced to sell these securities before the earlier of amortized cost recovery or maturity. Equity securities are assessed for other-than-temporary impairment based on the length of time of impairment, dollar amount of the impairment and general market and financial conditions relating to specific issues. The impairment identified on debt and equity securities and subject to assessment at March 31, 2014, was deemed to be temporary and required no further adjustments to the financial statements, unless otherwise noted.

The following table reflects temporary impairment in the investment portfolio (excluding restricted stock), aggregated by investment category, length of time that individual securities have been in a continuous unrealized loss position and the number of securities in each category as of March 31, 2014 and December 31, 2013:



	March 31, 2014
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count

U.S. Government agency securities	$	4,051	$	(37)	5	$	5,593	$	(59)	11	$	9,644	$	(96)	16
Municipal securities		12,526		(483)	16		5,762		(493)	9		18,288		(976)	25
Trust preferred securities		-		-	-		5,095		(833)	7		5,095		(833)	7
Agency mortgage-backed securities		31,497		(358)	29		3,371		(86)	4		34,868		(444)	33
Private-label mortgage-backed securities		-		-	-		879		(44)	2		879		(44)	2
Asset-backed securities		-		-	-		5		(3)	1		5		(3)	1
Total temporarily impaired securities	$	48,074	$	(878)	50	$	20,705	$	(1,518)	34	$	68,779	$	(2,396)	84



	December 31, 2013
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count

Equity securities	$	22	$	(1)	1	$	-	$	-	-	$	22	$	(1)	1
U.S. Government agency securities		3,971		(85)	7		3,807		(29)	7		7,778		(114)	14
Municipal securities		16,770		(1,022)	24		3,160		(382)	4		19,930		(1,404)	28
Corporate debt securities		-		-	-		1,001		(1)	1		1,001		(1)	1
Trust preferred securities		-		-	-		5,051		(871)	7		5,051		(871)	7
Agency mortgage-backed securities		40,395		(999)	38		2,213		(52)	4		42,608		(1,051)	42
Private-label mortgage-backed securities		-		-	-		911		(31)	2		911		(31)	2
Asset-backed securities		-		-	-		48		(3)	3		48		(3)	3
Total temporarily impaired securities	$	61,158	$	(2,107)	70	$	16,191	$	(1,369)	28	$	77,349	$	(3,476)	98

The municipal bond portfolio has the largest unrealized loss at $1.0 million, $400 thousand less than at the prior-year end. The unrealized loss in this portfolio is deemed to be non-credit related and no other-than-temporary impairment charges have been recorded.

The trust preferred portfolio contains seven securities with a fair value of $5.1 million and an unrealized loss of $833 thousand. The trust-preferred securities held by the Bank are single entity issues, not pooled trust preferred securities. Therefore, the impairment review of these securities is based only on the issuer and the security cannot be impaired by the performance of other issuers as if it was a pooled trust-preferred bond. All of the Bank’s trust preferred securities are single issue, variable rate notes with long maturities (2027 – 2028). None of these bonds have suspended or missed a dividend payment. At March 31, 2014, the Bank believes it will be able to collect all interest and principal due on these bonds and no other-than-temporary-impairment charges were recorded.

The PLMBS sector shows a gross unrealized loss of $44 thousand. These bonds were all rated AAA at time of purchase, but have since experienced rating declines. Some have experienced increased delinquencies and defaults, while others have seen the credit support increase as the bonds paid-down. The Bank monitors the performance of the PLMBS investments on a regular basis and reviews delinquencies, default rates, credit support levels and various cash flow stress test scenarios. In determining the credit related loss, Management considers all principal past due 60 days or more as a loss. If additional principal moves beyond 60 days past due, it will also be considered a loss. As a result of the analysis on PLMBS it was determined that no impairment charge was required at quarter end. The Bank has recorded $515 thousand of cumulative impairment charges on this portfolio. Management continues to monitor these securities and it is possible that additional write-downs may occur if current loss trends continue. The Bank is currently participating in a class-action lawsuit against one PLMBS servicer that centers on defective warranties and representations made as part of the underwriting process.

The Bank held $1.9 million of restricted stock at March 31, 2014. Except for $30 thousand, this investment represents stock in FHLB Pittsburgh. The Bank is required to hold this stock to be a member of FHLB and it is carried at cost of $100 per share.

FHLB stock is evaluated for impairment primarily based on an assessment of the ultimate recoverability of its cost. As a government sponsored entity, FHLB has the ability to raise funding through the U.S. Treasury that can be used to support its operations. There is not a public market for FHLB stock and the benefits of FHLB membership (e.g., liquidity and low cost funding) add value to the stock beyond purely financial measures. Management intends to remain a member of the FHLB and believes that it will be able to fully recover the cost basis of this investment.