(3) SECURITIES

Amortized cost and estimated fair value of securities available for sale at December 31, 2012 and 2011 are as follows:

	2012				2011
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	138,041,393	$	141,591,214	$	149,140,715	$	152,079,770
Mortgage-backed securities, residential		29,591,883		31,515,249		48,129,271		50,766,605
Collateralized mortgage obligations		3,494,642		3,543,360		7,412,470		7,536,753
Obligations of states and political subdivisions		39,174,595		40,814,722		44,561,789		46,512,971
Corporate bonds and notes		11,412,167		11,651,635		13,461,675		13,684,198
SBA loan pools		1,682,736		1,724,140		1,915,419		1,949,606
Trust preferred securities		2,519,379		2,470,913		2,538,286		2,310,066
Corporate stocks		736,495		6,374,530		788,030		6,029,841
Total	$	226,653,290	$	239,685,763	$	267,947,655	$	280,869,810

Gross unrealized gains and losses on securities available for sale at December 31, 2012 and 2011, were as follows:

	2012				2011
	Unrealized		Unrealized		Unrealized		Unrealized
	Gains		Losses		Gains		Losses
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	3,549,821	$	-	$	3,022,726	$	83,671
Mortgage-backed securities, residential		1,923,366		-		2,637,334		-
Collateralized mortgage obligations		48,718		-		135,603		11,321
Obligations of states and political subdivisions		1,641,510		1,383		1,954,265		3,083
Corporate bonds and notes		239,468		-		418,969		196,446
SBA loan pools		41,404		-		34,187		-
Trust preferred securities		134,959		183,425		132,516		360,735
Corporate stocks		5,645,753		7,718		5,246,655		4,844
Total	$	13,224,999	$	192,526	$	13,582,255	$	660,100

The amortized cost and estimated fair value of debt securities available for sale 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:

	December 31, 2012
	Amortized		Fair
	Cost		Value
Within One Year	$	46,986,281	$	47,375,648
After One, But Within Five Years		137,310,080		141,854,201
After Five, But Within Ten Years		6,222,148		6,853,035
After Ten Years		629,025		445,600
Mortgage-backed securities, residential		29,591,883		31,515,249
Collateralized mortgage obligations		3,494,642		3,543,360
SBA loan pools		1,682,736		1,724,140
Total	$	225,916,795	$	233,311,233

Actual maturities may differ from contractual maturities above because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

The proceeds from sales and calls of securities resulting in gains or losses are listed below:

		2012		2011		2010
Proceeds	$	26,210,087	$	35,741,211	$	10,520,033
Gross gains	$	300,516	$	1,108,091	$	451,094
Gross losses	$	-	$	-	$	428
Tax expense	$	115,518	$	423,191	$	174,345

Amortized cost and estimated fair value of securities held to maturity at December 31, 2012 and 2011 are as follows:

	2012				2011
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Obligations of states and political subdivisions	$	5,748,453	$	6,421,486	$	8,311,921	$	9,175,956

Securities held to maturity had unrecognized gains totaling $673,033 and $864,035 at December 31, 2012 and 2011, respectively. There were no unrecognized losses at December 31, 2012 and December 31, 2011. There were no sales of securities held to maturity in 2012 or 2011.

The contractual maturity of securities held to maturity is as follows at December 31, 2012:

	December 31, 2012
	Amortized		Fair
	Cost		Value
Within One Year	$	1,475,115	$	1,495,042
After One, But Within Five Years		2,738,944		3,033,325
After Five, But Within Ten Years		1,534,394		1,893,119
After Ten Years		-		-
Total	$	5,748,453	$	6,421,486

The following table summarizes the investment securities available for sale with unrealized losses at December 31, 2012 and December 31, 2011 by aggregated major security type and length of time in a continuous unrealized position:

	Less than 12 months				12 months or longer				Total
2012	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of states and political subdivisions	$	-	$	-	$	430,166	$	1,383	$	430,166	$	1,383
Trust preferred securities		-		-		445,600		183,425		445,600		183,425
Corporate stocks		-		-		45,912		7,718		45,912		7,718
Total temporarily impaired securities	$	-	$	-	$	921,678	$	192,526	$	921,678	$	192,526

	Less than 12 months				12 months or longer				Total
2011	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	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		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

As of December 31, 2012, the majority of the Corporation's unrealized losses in the investment securities portfolio related to a collateralized debt obligation ("CDO") consisting of a pool of trust preferred securities. 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 amortized cost of a CDO consisting of a pool of trust preferred securities. This security was rated high quality at inception, but at December 31, 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. Assumptions used in the model include expected future default rates and prepayments. We assume no recoveries on defaults and treat all interest payment deferrals as defaults.

Upon completion of the December 31, 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 December 31, 2012. Quarterly interest payments continue to be made on this security.

When conducting the December 31, 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. 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 $117,118 and $220,459, net of tax for securities available for sale at December 31, 2012 and 2011, respectively.

The table below presents a roll forward of the cumulative credit losses recognized in earnings for the periods ended December 31, 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, December 31,	$	3,506,073	$	3,506,073

Interest and dividend income on securities for the years ended December 31, 2012, 2011 and 2010 was as follows:

Taxable:	2012		2011		2010
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	2,457,865	$	2,276,838	$	2,086,561
Mortgage-backed securities, residential		1,447,169		2,181,824		3,184,152
Collateralized mortgage obligations		137,732		188,160		-
Corporate bonds and notes		580,152		578,601		499,167
SBA Loan Pools		31,951		31,768		-
Trust preferred securities		271,699		241,626		271,500
Obligations of taxable states and political subdivisions		-		2,798		-
Corporate stocks		430,611		372,402		286,109
Exempt from Federal taxation:
Obligations of states and political subdivisions		1,268,242		1,378,753		1,188,193
Total	$	6,625,421	$	7,252,772	$	7,515,682

The fair value of securities pledged to secure public funds on deposit or for other purposes as required by law was $212,257,614 at December 31, 2012 and $201,938,127 at December 31, 2011.

The table below shows the securities pledged to secure securities sold under agreements to repurchase at December 31, 2012 and 2011:

	2012				2011
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Obligations of U.S. Government and U. S. Government sponsored enterprises	$	31,888,493	$	32,812,885	$	33,561,553	$	34,504,015
Mortgage-backed securities, residential		16,503,983		17,575,852		25,769,793		27,242,850
Collateralized mortgage obligations		756,542		770,625		1,807,795		1,854,019
Total	$	49,149,018	$	51,159,362	$	61,139,141	$	63,600,884

There are no securities of a single issuer (other than securities of U.S. Government sponsored enterprises) that exceed 10% of shareholders' equity at December 31, 2012 or 2011.

The Corporation has an equity investment in Cephas Capital Partners, L.P. This small business investment company was established for the purpose of providing financing to small businesses in market areas served by the Corporation, including minority-owned small businesses and those that are anticipated to create jobs for the low to moderate income levels in the targeted areas. As of December 31, 2012 and 2011, these investments totaled $1,757,252 and $2,450,153, respectively, are included in other assets, and are accounted for under the equity method of accounting.