Investment and Mortgage-Backed Securities, Available For Sale

The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of investment and mortgage-backed securities available for sale are as follows:



	June 30, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair value
FHLB Securities	$	16,788,459	$	66,319	$	522,191	$	16,332,587
Federal Farm Credit Bank ("FFCB") Securities	5,756,637		—		242,720		5,513,917
Fannie Mae ("FNMA") And Freddie Mac ("FHLMC") Bonds	3,015,316		1,855		25,320		2,991,851
Small Business Administration (“SBA”) Bonds	89,367,398		2,381,429		222,179		91,526,648
Tax Exempt Municipal Bonds	62,148,887		507,294		2,890,385		59,765,796
Mortgage-Backed Securities	251,226,352		7,368,429		2,643,194		255,951,587
Equity Securities	257,938		—		8,438		249,500
	$	428,560,987	$	10,325,326	$	6,554,427	$	432,331,886

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair value
FHLB Securities	$	6,115,036	$	53,954	$	4,320	$	6,164,670
SBA Bonds	94,152,203		2,466,354		156,287		96,462,270
Tax Exempt Municipal Bonds	35,772,115		1,770,567		60,534		37,482,148
Mortgage-Backed Securities	206,793,861		8,030,008		91,966		214,731,903
Equity Securities	102,938		—		27,713		75,225
	$	342,936,153	$	12,320,883	$	340,820	$	354,916,216

FHLB securities, and FNMA and FHLMC mortgage-backed securities are issued by government-sponsored enterprises (“GSEs”). GSEs are not backed by the full faith and credit of the United States government. SBA bonds are backed by the full faith and credit of the United States government. Included in the tables above and below in mortgage-backed securities are GNMA mortgage-backed securities, which are also backed by the full faith and credit of the United States government. At June 30, 2013 the Bank held an amortized cost and fair value of $171.2 million and $176.1 million, respectively, in GNMA mortgage-backed securities included in mortgage-backed securities listed above compared to an amortized cost and fair value of $135.3 million and $141.2 million, respectively, at December 31, 2012. All mortgage-backed securities above are either GSEs or GNMA mortgage-backed securities. The Company has not invested in any private label mortgage-backed securities.

Market interest rates increased sharply in June 2013 as a result of a discussions by the Federal Reserve Board of reducing its monthly purchases of bonds and mortgage-backed securities sooner than expected. Long term interest rates were especially affected by this. As a result, the market values in our investment and mortgage-backed securities portfolio were negatively impacted.

7. Investment and Mortgage-Backed Securities, Available For Sale, Continued

The amortized cost and fair value of investment and mortgage-backed securities available for sale at June 30, 2013 are shown below by contractual maturity. Expected maturities will differ from contractual maturities because borrowers have the right to prepay obligations with or without call or prepayment penalties.



	Amortized Cost		Fair Value
Less Than One Year	$	2,000,000	$	2,006,870
One – Five Years	14,312,240		14,665,395
Over Five – Ten Years	67,498,366		67,969,587
More Than Ten Years	93,524,029		91,738,447
Mortgage-Backed Securities	251,226,352		255,951,587
	$	428,560,987	$	432,331,886

At June 30, 2013 the amortized cost and fair value of investment and mortgage-backed securities available for sale pledged as collateral for certain deposit accounts, FHLB advances and other borrowings were $120.5 million and $123.4 million, respectively, compared to an amortized cost and fair value of $108.9 million and $114.4 million, respectively at December 31, 2012.

The Bank received $31.8 million and $21.3 million, respectively, in gross proceeds from sales of available for sale securities during the six months ended June 30, 2013 and 2012. As a result, the Bank recognized $754,000 and $639,000, respectively, in gross gains and for the six months ended June 30, 2013 and 2012. The Bank received $10.9 million and $7.8 million, respectively, in gross proceeds from sales of available for sale securities during the three months ended June 30, 2013 and 2012. As a result, the Bank recognized $370,000 and $104,000, respectively, in gross gains and for the three months ended June 30, 2013 and 2012.

The following tables show gross unrealized losses and fair value, aggregated by investment category, and length of time that the individual available for sale securities have been in a continuous unrealized loss position at the dates indicated.



	June 30, 2013
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
FHLB Securities	$	12,475,360	$	522,191	$	—	$	—	$	12,475,360	$	522,191
FFCB Securities	5,513,918		242,720						5,513,918		242,720
FNMA And FHLMC Bonds	1,990,280		25,320						1,990,280		25,320
SBA Bonds	14,595,582		222,179		—		—		14,595,582		222,179
Tax Exempt Municipal Bond	40,708,636		2,890,385		—		—		40,708,636		2,890,385
Mortgage-Backed Securities	68,147,948		2,636,697		1,287,119		6,497		69,435,067		2,643,194
Equity Securities	—		—		94,500		8,438		94,500		8,438
	$	143,431,724	$	6,539,492	$	1,381,619	$	14,935	$	144,813,343	$	6,554,427

7. Investment and Mortgage-Backed Securities, Available For Sale, Continued



	December 31, 2012
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
FHLB Securities	$	995,680	$	4,320	$	—	$	—	$	995,680	$	4,320
SBA Bonds	4,583,177		119,825		1,833,076		36,462		6,416,253		156,287
Tax Exempt Municipal Bond	4,538,734		60,534		—		—		4,538,734		60,534
Mortgage-Backed Securities	16,259,037		91,966		—		—		16,259,037		91,966
Equity Securities	—		—		75,225		27,713		75,225		27,713
	$	26,376,628	$	276,645	$	1,908,301	$	64,175	$	28,284,929	$	340,820

Securities classified as available -for -sale are recorded at fair market value. At June 30, 2013 and December 31, 2012, 0.3% and 18.8% of the unrealized losses, respectively, or two individual securities, consisted of securities in a continuous loss position for 12 months or more. The Company has the ability and intent to hold these securities until such time as the value recovers or the securities mature. The Company believes, based on industry analyst reports and credit ratings, that the deterioration in value is attributable to changes in market interest rates and is not in the credit quality of the issuer and therefore, these losses are not considered other-than-temporary. The Company reviews its investment securities portfolio at least quarterly and more frequently when economic conditions warrant, assessing whether there is any indication of other-than-temporary impairment (“OTTI”).

Factors considered in the review include estimated future cash flows, length of time and extent to which market value has been less than cost, the financial condition and near term prospects of the issuer, and our intent and ability to retain the security to allow for an anticipated recovery in market value.

If the review determines that there is OTTI, then an impairment loss is recognized in earnings equal to the entire difference between the investment’s cost and its fair value at the balance sheet date of the reporting period for which the assessment is made, or we may recognize a portion in other comprehensive income. The fair value of investments on which OTTI is recognized then becomes the new cost basis of the investment.