Note 4 – Investment Securities Available-for-Sale

The amortized cost and estimated fair values of investment securities available-for-sale are reflected in the following schedules at December 31, 2013 and 2012:

 

		2013
		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
		(In thousands)
U.S. Government agency securities		$	1,405			$	—			$	49			$	1,356
State and municipal			37,686				176				819				37,043
U.S. Government agencies and sponsored enterprises (GSEs) – residential:
Mortgage-backed securities			13,226				43				128				13,141
Collateralized mortgage obligations (CMOs)			3,387				8				65				3.330
Corporate debt obligations			1,852				1				2				1,851
Equity securities, financial services			512				15				2				525
		$	58,068			$	243			$	1,065			$	57,246

 

		2012
		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
		(In thousands)
U.S. Government agencies		$	3,500			$	6			$	—			$	3,506
State and municipal			22,252				665				64				22,853
U.S. Government agencies and sponsored enterprises (GSEs) – residential:
Mortgage-backed securities			12,837				169				—				13,006
Collateralized mortgage obligations (CMOs)			5,555				181				—				5,736
		$	44,144			$	1,021			$	64			$	45,101

The amortized cost and fair value of debt securities available-for-sale at December 31, 2013, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to prepay obligations with or without call or prepayment penalties:

 

		Amortized Cost				Fair Value
		(In thousands)
Due in one year or less		$	—			$	—
Due after one year through five years			6,863				6,859
Due after five years through ten years			12,095				12,105
Due after ten years			21,985				21,286
			40,943				40,250
Mortgage-backed securities			13,226				13,141
CMOs			3,387				3,330
Equity securities, financial services			512				525
			17,125				16,996
		$	58,068			$	57,246

Securities with an amortized cost of $53,401,000 and $30,949,000 and a fair value of $52,598,000 and $31,797,000 at December 31, 2013 and 2012, respectively, were pledged as collateral for public deposits and for other purposes as required or permitted by law.

Information pertaining to securities with gross unrealized losses at December 31, 2013 and 2012 aggregated by investment category and length of time that individual securities have been in a continuous loss position are as follows:

 

		Less Than 12 Months								More Than 12 Months								Total
		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
		(In thousands)
December 31, 2013:
Available-for-sale:
U.S. Government agency securities		$	1,241			$	49			$	—			$	—			$	1,241			$	49
State and municipal			22,098				729				1,862				90				23,960				819
Mortgage-backed securities			7,441				128				—				—				7,441				128
Collateralized mortgage obligations (CMOs)			2,618				65				—				—				2,618				65
Corporate debt obligations			1,362				2				—				—				1,362				2
Equity securities, financial services			39				2				—				—				39				2
		$	34,799			$	975			$	1,862			$	90			$	36,661			$	1,065
December 31, 2012:
Available-for-sale:
State and municipal		$	5,053			$	64			$	—			$	—			$	5,053			$	64
		$	5,053			$	64			$	—			$	—			$	5,053			$	64

Management evaluates securities for other-than-temporary impairment, at least on a quarterly basis. It is management’s intent to hold all investments until maturity unless market, economic, credit quality or specific investment concerns warrant a sale of securities. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the credit quality or financial condition and near-term prospects of the issuer, and (3) the intent and ability of the corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

At December 31, 2013, eighty securities had unrealized losses as compared with twelve state and municipal securities at December 31, 2012. Management believes the unrealized losses relate to changes in interest rates since the individual securities were purchased as opposed to underlying credit issues. As management does not intend to sell any debt securities, and it is more likely than not that management will not be required to sell any debt securities before the cost bases are recovered, no declines are deemed to be other-than-temporary.

As part of its strategy to manage interest rate risk and prepayment risk inherent within the investment portfolio, the Bank sold four available-for-sale U. S. treasury securities and four available-for-sale collateralized mortgage obligation securities during 2013 totaling $7,177,000 as compared with 2012 when it sold ten available-for-sale mortgage-backed securities and two available-for-sale state and municipal securities totaling $19,106,000. Gross realized gains for 2013 amounted to $118,000 and gross realized losses were $1,000, resulting in a $117,000 net gain from the sale. This compares with 2012 where gross realized gains amounted to $770,000 and gross realized losses were zero, resulting in a $770,000 net gain from the sale. The Bank reinvested the proceeds from the sale by purchasing fixed rate mortgage-backed securities, callable agencies and state and municipal securities which not only provide interest income but also allowed the Bank to better manage the cash flow generated from the portfolio.