8. Securities

Amortized cost and estimated fair value of securities available for sale are as follows:

	September 30, 2012
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	142,730,477	$	3,920,177	$	-	$	146,650,654
Mortgage-backed securities, residential		33,801,646		2,484,121		-		36,285,767
Collateralized Mortgage obligations		4,653,401		74,909		931		4,727,379
Obligations of states and political subdivisions		39,800,910		1,810,542		1,838		41,609,614
Corporate bonds and notes		13,421,730		346,574		3,464		13,764,840
SBA loan pools		1,743,803		39,587		-		1,783,390
Trust Preferred securities		2,517,440		127,991		183,425		2,462,006
Corporate stocks		744,715		5,645,849		5,260		6,385,304
Total	$	239,414,122	$	14,449,750	$	194,918	$	253,668,954

	December 31, 2011
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	149,140,715	$	3,022,726	$	83,671	$	152,079,770
Mortgage-backed securities, residential		48,129,271		2,637,334		-		50,766,605
Collateralized mortgage obligations		7,412,471		135,603		11,321		7,536,753
Obligations of states and political subdivisions		44,561,789		1,954,265		3,083		46,512,971
Corporate bonds and notes		13,461,675		418,969		196,446		13,684,198
SBA loan pools		1,915,419		34,187		-		1,949,606
Trust preferred securities		2,538,285		132,516		360,735		2,310,066
Corporate stocks		788,030		5,246,655		4,844		6,029,841
Total	$	267,947,655	$	13,582,255	$	660,100	$	280,869,810

Amortized cost and estimated fair value of securities held to maturity are as follows:

	September 30, 2012
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Obligations of states and political subdivisions	$	6,162,503	$	718,669	$	-	$	6,881,172

	December 31, 2011
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Obligations of states and political subdivisions	$	8,311,921	$	864,035	$	-	$	9,175,956

The amortized cost and estimated fair value of debt securities are shown below by expected maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately:

	September 30, 2012
	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Within One Year	$	58,024,142	$	58,383,376	$	1,606,365	$	1,633,074
After One, But Within Five Years		133,178,606		138,326,611		3,147,444		3,490,139
After Five, But Within Ten Years		6,638,784		7,331,527		1,408,694		1,757,959
After Ten Years		629,025		445,600		-		-
Mortgage-backed securities, residential		33,801,646		36,285,767		-		-
Collateralized mortgage obligations		4,653,401		4,727,379		-		-
SBA loan pools		1,743,803		1,783,390		-		-
Total	$	238,669,407	$	247,283,650	$	6,162,503	$	6,881,172

Proceeds from sales and calls of securities available for sale for the three and nine months ended September 30, 2012 were $1,002,052 and $70,370,086, respectively. Realized gross gains on these sales and calls were $597 and $300,516 during the three and nine month periods ended September 30, 2012, respectively. There were no sales or calls of securities available for sale that resulted in losses for the three or nine-months ended September 30, 2012.

Proceeds from sales and calls of securities available for sale for the three and nine months ended September 30, 2011, were $11,085,156 and $67,741,210, respectively. Realized gross gains on these sales and calls were $428,882 and $1,108,091 during the three and nine month periods ended September 30, 2011, respectively. There were no sales or calls of securities available for sale that resulted in losses for the three or nine-months ended September 30, 2011.

The following tables summarize the investment securities available for sale and held to maturity with unrealized losses at September 30, 2012 and December 31, 2011 by aggregated major security type and length of time in a continuous unrealized loss position:

	Less than 12 months				12 months or longer				Total
September 30, 2012	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Collateralized mortgage obligations	$	22,087	$	70	$	178,729	$	861	$	200,816	$	931
Obligations of states and political subdivisions		430,847		1,838		-		-		430,847		1,838
Corporate bonds and notes		-		-		494,297		3,464		494,297		3,464
Trust preferred securities		-		-		445,600		183,425		445,600		183,425
Corporate stocks		-		-		48,370		5,260		48,370		5,260
Total temporarily impaired securities	$	452,934	$	1,908	$	1,166,996	$	193,010	$	1,619,930	$	194,918

	Less than 12 months				12 months or longer				Total
December 31, 2011	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	27,365,920	$	83,671	$	-	$	-	$	27,365,920	$	83,671
Collateralized mortgage obligations		2,546,461		11,321		-		-		2,546,461		11,321
Obligations of states and political subdivisions		947,203		3,083		-		-		947,203		3,083
Corporate bonds and notes		5,261,074		196,446		-		-		5,261,074		196,446
Trust preferred securities		-		-		294,910		360,735		294,910		360,735
Corporate stocks		1,669		1,969		47,117		2,875		48,786		4,844
Total temporarily impaired securities	$	36,122,327	$	296,490	$	342,027	$	363,610	$	36,464,354	$	660,100

Other-Than-Temporary Impairment ("OTTI")

When OTTI occurs, for either debt securities or purchased beneficial interests, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss. If an entity intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss, the OTTI shall be recognized in earnings equal to the entire difference between the investment's amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

As of September 30, 2012, the majority of the Corporation's unrealized losses in the investment securities portfolio related to one pooled trust preferred security. The decline in fair value on this security is primarily attributable to the financial crisis and resulting credit deterioration and financial condition of the underlying issuers, all of which are financial institutions. This deterioration may affect the future receipt of both principal and interest payments on this security. This fact combined with the current illiquidity in the market makes it unlikely that the Corporation would be able to recover its investment in this security if it was sold at this time.

Our analysis of this investment includes a $629,025 book value collateralized debt obligation ("CDO") which is a pooled trust preferred security. This security was rated high quality at inception, but at September 30, 2012 Moody's rated this security as Caa3, which is defined as substantial risk of default. The Corporation uses the OTTI evaluation model to compare the present value of expected cash flows to the previous estimate to determine if there are adverse changes in cash flows during each quarter. The OTTI model considers the structure and term of the CDO and the financial condition of the underlying issuers. Specifically, the model details interest rates, principal balances of note classes and underlying issuers, the timing and amount of interest and principal payments of the underlying issuers, and the allocation of the payments to the note classes. The current estimate of expected cash flows is based on the most recent trustee reports and any other relevant market information including announcements of interest payment deferrals or defaults of underlying trust preferred securities.

Upon completion of the September 30, 2012 analysis, our model indicated no additional OTTI on this CDO. This security remained classified as available for sale and represented $183,425 of the unrealized losses reported at September 30, 2012. Payments continue to be made as agreed on this security.

When conducting the September 30, 2012 analysis, the present value of expected future cash flows using a discount rate equal to the yield in effect at the time of purchase was compared to the previous quarters' analysis. The analysis indicated no further decline in value attributed to credit related factors stemming from further deterioration in the underlying collateral payment streams. Additionally, to estimate fair value the present value of the expected future cash flows was calculated using a current estimated discount rate that a willing market participant might use to value the security based on current market conditions and interest rates. This comparison indicated an increase in value during the quarter, based on factors other than credit, which resulted in a gain reported in other comprehensive income. Changes in credit quality may or may not correlate to changes in the overall fair value of the impaired securities as the change in credit quality is only one component in assessing the overall fair value of the impaired securities. Therefore, the recognition of additional credit related OTTI could result in a gain reported in other comprehensive income. Total OTTI recognized in accumulated other comprehensive income was $111,329 and $220,459 for securities available for sale at September 30, 2012 and December 31, 2011, respectively.

The tables below present a roll forward of the cumulative credit losses recognized in earnings for the three and nine-month periods ending September 30, 2012 and 2011:

	2012		2011
Beginning balance, January 1,	$	3,506,073	$	3,438,673
Amounts related to credit loss for which an other-than-temporary impairment was not previously recognized		-		-
Additions/Subtractions:
Amounts realized for securities sold during the period		-		-
Amounts related to securities for which the company intends to sell or that it will be more likely than not that the company will be required to sell prior to recovery of amortized cost basis		-		-
Reductions for increase in cash flows expected to be collected that are recognized over the remaining life of the security		-		-
Increases to the amount related to the credit loss for which other-than-temporary impairment was previously recognized		-		67,400
Ending balance, September 30,	$	3,506,073	$	3,506,073

Beginning balance, July 1,	$	3,506,073	$	3,438,673
Amounts related to credit loss for which an other-than-temporary impairment was not previously recognized		-		-
Additions/Subtractions:
Amounts realized for securities sold during the period		-		-
Amounts related to securities for which the company intends to sell or that it will be more likely than not that the company will be required to sell prior to recovery of amortized cost basis		-		-
Reductions for increase in cash flows expected to be collected that are recognized over the remaining life of the security		-		-
Increases to the amount related to the credit loss for which other-than-temporary impairment was previously recognized		-		67,400
Ending balance, September 30,	$	3,506,073	$	3,506,073