INVESTMENT SECURITIES

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements

INVESTMENT SECURITIES

NOTE 4      INVESTMENT SECURITIES:

The amortized cost and fair value of securities held to maturity are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2011
U. S. Treasuries	$	108,305	$	-	$	-	$	108,305
December 31, 2010
U. S. Treasuries	$	108,974	$	-	$	-	$	108,974

The amortized cost and fair value of securities available for sale are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2011
Government sponsored enterprises	$	11,034,209	$	35,517	$	5,506	$	11,064,220
Mortgage-backed obligations of federal agencies		2,062,669		-		-		2,062,669
Marketable equities		-		-		-		-
Corporate bonds		-		-		-		-
Total Securities Available for Sale	$	13,096,878	$	35,517	$	5,506	$	13,126,889
December 31, 2010
Government sponsored enterprises	$	7,997,077	$	7,020	$	3,415	$	8,000,682
Mortgage-backed obligations of federal agencies		3,723,928		209,386		2,353		3,930,961
Marketable equities		2,642,833		710,857		38,809		3,314,881
Corporate bonds
Total Securities Available for Sale	$	14,363,838	$	927,263	$	44,577	$	15,246,524

The amortized cost and fair value of securities at December 31, 2011, by contractual maturity 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.

	Securities Held to Maturity				Securities Available for Sale
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	108,305	$	108,305	$	-	$	-
Due after one year through five years		-		-		11,034,209		11,064,220
Due after five years		-		-		2,062,669		2,062,669
		108,305		108,305		13,096,878		13,126,889
Marketable equities
Total	$	108,305	$	108,305	$	13,096,878	$	13,126,889

There were no sales of debt securities during 2011, 2010, or 2009. Following is a table reflecting gains and losses on equity securities:

	2011			2010		2009
Gains	$	1,110,960		$	506,379	$	2,475
Losses		(86,421	)		(92,409)		(4,899	)
Net Gains	$	1,024,539		$	413,970	$	(2,424	)

The carrying value (which approximates fair value) of securities pledged by the Bank to secure deposits and for other purposes amounted to $13,127,000 at December 31, 2011 and $8,019,000 at December 31, 2010.

Other investments consist of investments in fourteen low-income housing and historic equity partnerships (carrying basis of $4,331,000), stock in the Federal Home Loan Bank (carrying basis of $3,608,000), and various other investments (carrying basis of $933,000).  The interests in the low-income housing and historic equity partnerships have limited transferability and the interests in the other stocks are restricted as to sales.  The market values of these securities are estimated to approximate their carrying value as of December 31, 2011.   At December 31, 2011, the Company was committed to invest an additional $2,438,813 in five low-income housing limited partnerships.  These funds will be paid as requested by the general partner to complete the projects.  This additional investment has been reflected in the above carrying basis and in accrued liabilities on the balance sheet.

The primary purpose of the investment portfolio is to generate income and meet liquidity needs of the Company through readily saleable financial instruments.  The portfolio includes fixed rate bonds, whose prices move inversely with rates, variable rate bonds and equity securities.  At the end of any accounting period, the investment portfolio has unrealized gains and losses.  The Company monitors the portfolio, which is subject to liquidity needs, market rate changes and credit risk changes, to see if adjustments are needed.  The primary concern in a loss situation is the credit quality of the business behind the instrument. Bonds deteriorate in value due to credit quality of the individual issuer and changes in market conditions.  These losses relate to market conditions and the timing of purchases.

A summary of these losses (in thousands) is as follows:

	Less than 12 Months					More than 12 Months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
2011
Government sponsored enterprises	$	5,033	$	(6	)	$	-	$	-		$	5,033	$	(6	)
Mortgage backed obligations		-		-			-		-			-		-
Marketable equities		-		-			-		-			-		-
Total	$	5,033	$	(6	)	$	-	$	-		$	5,033	$	(6	)
2010
Government sponsored enterprises	$	2,004	$	(4	)	$	-	$	-		$	2,004	$	(4	)
Mortgage backed obligations		-		-			260		(2	)		260		(2	)
Marketable equities		-		-			575		(39	)		575		(39	)
Total	$	2,004	$	(4	)	$	835	$	(41	)	$	2,839	$	(45	)

Management evaluates securities for other-than-temporary impairment on at least a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than the cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery of fair value.  The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell these securities before recovery of their amortized cost.

The Company recognized other-than-temporary impairment losses of $0, $65,000, and $1,751,000 in the carrying basis of its equity holdings in 2011, 2010, and 2009, respectively. These write downs were a result of management’s evaluation and determination that these assets met the definition of other than temporary impairment under ASC 320-10.