6. Investment Securities

The cost basis and fair values of investment securities are summarized as follows (in thousands):

Investment securities available for sale (AFS):


	June 30, 2014
	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
US Agency	$	6,928	$	41	$	(45	)	$	6,924
US Agency mortgage-backed securities		111,629		3,574		(542	)		114,661
Corporate bonds		12,993		61		(135	)		12,919
Total	$	131,550	$	3,676	$	(722	)	$	134,504

Investment securities held to maturity (HTM):


	June 30, 2014
	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
US Agency mortgage-backed securities	$	13,231	$	365	$	(159	)	$	13,437
Taxable municipal		1,873		44		(40	)		1,877
Corporate bonds and other securities		3,995		-		(46	)		3,949
Total	$	19,099	$	409	$	(245	)	$	19,263

Investment securities available for sale (AFS):


	December 31, 2013
	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
US Agency	$	6,926	$	35	$	(126	)	$	6,835
US Agency mortgage-backed securities		121,480		3,129		(1,227	)		123,382
Corporate bonds		11,992		21		(252	)		11,761
Total	$	140,398	$	3,185	$	(1,605	)	$	141,978

Investment securities held to maturity (HTM):


	December 31, 2013
	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
US Agency mortgage-backed securities	$	12,671	$	289	$	(477	)	$	12,483
Taxable municipal		1,521		-		(120	)		1,401
Corporate bonds and other securities		3,995		-		(91	)		3,904
Total	$	18,187	$	289	$	(688	)	$	17,788

Maintaining investment quality is a primary objective of the Company's investment policy which, subject to certain limited exceptions, prohibits the purchase of any investment security below a Moody's Investor's Service or Standard & Poor's rating of "A." At June 30, 2014, 87.5% of the portfolio was rated "AAA" as compared to 89.0% at December 31, 2013. 2.0% of the portfolio was either rated below "A" or unrated at June 30, 2014. The Company has no exposure to subprime mortgage loans in the investment portfolio. At June 30, 2014, the Company's consolidated investment securities portfolio had an effective duration of approximately 3.11 years.

Total proceeds from the sale of AFS securities for the second quarter of 2014 were $2.5 million resulting in $120,000 of gross investment security gains. Total proceeds from the sale of AFS securities for the first six months of 2014 were $5.2 million resulting in $182,000 of gross investment security gains and $5,000 of gross security losses. Total proceeds from the sale of AFS securities for the first six months of 2013 were $1.2 million resulting in $71,000 of gross investment security gains. The Company had no sales of AFS securities in the second quarter of 2013.

The book value of securities, both available for sale and held to maturity, pledged to secure public and trust deposits, and certain Federal Home Loan Bank borrowings was $121,224,000 at June 30, 2014 and $110,780,000 at December 31, 2013.

The following tables present information concerning investments with unrealized losses as of June 30, 2014 and December 31, 2013 (in thousands):

Total investment securities:


	June 30, 2014
	Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
US Agency	$	50	$	(1	)	$	3,855	$	(44	)	$	3,905	$	(45	)
US Agency mortgage-backed securities		5,268		(31	)		27,360		(670	)		32,628		(701	)
Taxable municipal		149		(3	)		974		(37	)		1,123		(40	)
Corporate bonds and other securities		4,926		(69	)		6,886		(112	)		11,812		(181	)
Total	$	10,393	$	(104	)	$	39,075	$	(863	)	$	49,468	$	(967	)

Total investment securities:


	December 31, 2013
	Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
US Agency	$	3,812	$	(64	)	$	938	$	(62	)	$	4,750	$	(126	)
US Agency mortgage-backed securities		52,163		(1,701	)		669		(3	)		52,832		(1,704	)
Taxable municipal		891		(120	)		-		-			891		(120	)
Corporate bonds and other securities		9,687		(300	)		2,957		(43	)		12,644		(343	)
Total	$	66,553	$	(2,185	)	$	4,564	$	(108	)	$	71,117	$	(2,293	)

The unrealized losses are primarily a result of increases in market yields from the time of purchase. In general, as market yields rise, the value of securities will decrease; as market yields fall, the fair value of securities will increase. There are 44 positions that are considered temporarily impaired at June 30, 2014. Management generally views changes in fair value caused by changes in interest rates as temporary; therefore, these securities have not been classified as other-than-temporarily impaired. Management has also concluded that based on current information we expect to continue to receive scheduled interest payments as well as the entire principal balance. Furthermore, management does not intend to sell these securities and does not believe it will be required to sell these securities before they recover in value.

Contractual maturities of securities at June 30, 2014 are shown below (in thousands). Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without prepayment penalties.

Total investment securities:


	June 30, 2014
	Available for sale				Held to maturity
	Cost Basis		Fair Value		Cost Basis		Fair Value
Within 1 year	$	-	$	-	$	1,000	$	996
After 1 year but within 5 years		15,043		15,218		2,000		1,975
After 5 years but within 10 years		18,089		18,358		3,340		3,260
After 10 years but within 15 years		58,879		60,192		1,011		974
Over 15 years		39,539		40,736		11,748		12,058
Total	$	131,550	$	134,504	$	19,099	$	19,263