Note 2.

Securities

The amortized cost and fair value of securities available for sale, with unrealized gains and losses follows:

	September 30, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Obligations of U.S. Government corporations and agencies	$	40,515,573	$	1,075,764	$	(8,040	)		41,583,297
Obligations of states and political subdivisions		6,298,509		537,526		-			6,836,035
Corporate bonds		3,772,481		-		(3,496,163	)		276,318
Mutual funds		334,617		11,684		-			346,301
	$	50,921,180	$	1,624,974	$	(3,504,203	)	$	49,041,951

	December 31, 2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Obligations of U.S. Government corporations and agencies	$	40,020,633	$	353,292	$	(342,206	)	$	40,031,719
Obligations of states and political subdivisions		5,467,451		154,160		(2,847	)		5,618,764
Corporate bonds		3,947,133		-		(3,395,289	)		551,844
Mutual funds		326,861		-		(347	)		326,514
FHLMC preferred bank stock		9,100		-		-			9,100
	$	49,771,178	$	507,452	$	(3,740,689	)	$	46,537,941

The amortized cost and fair value of securities available for sale, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without penalties.

	September 30, 2011
	Amortized Cost		Fair Value
Due in one year or less	$	-	$	-
Due after one year through five years		14,035,570		14,107,251
Due after five years through ten years		7,441,136		7,971,085
Due after ten years		29,109,857		26,617,314
Mutual funds		334,617		346,301
	$	50,921,180	$	49,041,951

There were no impairment losses on securities during the quarter ended September 30, 2011 and $502,000 during the quarter ended September 30, 2010. For the nine months ended September 30, 2011 and September 30, 2010, impairment losses on securities were $189,000 and $978,000, respectively.

During the three and nine month periods ended September 30, 2011, the Bank sold 10,000 shares of Federal Home Loan Mortgage Corporation preferred bank stock at a gain of $22,100. During the quarter ended September 30, 2011, six securities were called totaling a fair value of $6.5 million, resulting in a gain of $2,100. During the nine months ended September 30, 2011, twelve securities were called totaling a fair value of $13.0 million, resulting in a gain of $6,300. In the quarter ended September 30, 2010, eight securities with a total amortized cost of $8.5 million, were sold for a gain of $465,000. For the nine months ended September 30, 2010, nine securities, with a total amortized cost of $9.9 million, were sold at a gain of $553,000. The tax expense on these gains on sale totaled $188,000.

The following table shows the Company securities with gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2011 and December 31, 2010, respectively.

	Less than 12 Months					12 Months or More					Total
September 30, 2011	Fair Value		Unrealized (Losses)			Fair Value		Unrealized (Losses)			Fair Value		Unrealized (Losses)

Obligations of U.S. Government, corporations and agencies	$	991,960	$	(8,040	)	$	-	$	-		$	991,960	$	(8,040	)
Obligations of states and political subdivisions		-		-			-		-
Corporate bonds		-		-			276,316		(3,496,163	)		276,316		(3,496,163	)
Total temporary impaired securities	$	991,960	$	(8,040	)	$	276,316	$	(3,496,163	)	$	1,268,276	$	(3,504,203	)


	Less than 12 Months					12 Months or More					Total
December 31, 2010	Fair Value		Unrealized (Losses)			Fair Value		Unrealized (Losses)			Fair Value		Unrealized (Losses)


Obligations of U.S. Government,corporations and agencies	$	24,409,268	$	(342,206	)	$	-	$	-		$	24,409,268	$	(342,206	)
Obligations of states and political subdivisions		579,760		(2,847	)		-		-			579,760		(2,847	)
Corporate bonds		-		-			551,844		(3,395,289	)		551,844		(3,395,289	)
Subtotal, debt securities		24,989,028		(345,053	)		551,844		(3,395,289	)		25,540,872		(3,740,342	)
Mutual funds		-		-			326,514		(347	)		326,514		(347	)
Total temporary impaired securities	$	24,989,028	$	(345,053	)	$	878,358	$	(3,395,636	)	$	25,867,386	$	(3,740,689	)

The nature of securities which were temporarily impaired for a continuous twelve month period or more at September 30, 2011 consisted of four corporate bonds with a cost basis net of other-than-temporary impairment (“OTTI”) totaling $3.8 million and a temporary loss of approximately $3.5 million. The method for valuing these four corporate bonds came from Moody's Analytics. Moody's Analytics employs a two-step discounted cash-flow valuation process. The first step is to use Monte Carlo simulations to evaluate the credit quality of the collateral pool and the structural supports. Step two is to apply a discount rate to the cash flows to calculate a value. These four corporate bonds are the “Class B” or subordinated “mezzanine” tranche of pooled trust preferred securities. The trust preferred securities are collateralized by the interest and principal payments made on trust preferred capital offerings by a geographically diversified pool of approximately 60 different financial institutions. They have an estimated maturity of 25 years. These bonds could have been called at par on the five year anniversary date of issuance, which has already passed for all four bonds. The bonds reprice every three months at a fixed rate index above the three-month London Interbank Offered Rate (“LIBOR”). These bonds have sufficient collateralization and cash flow projections to satisfy their valuation based on the cash flow portion of the OTTI test under authoritative accounting guidance as of September 30, 2011. All four bonds totaling $276,318 at fair value, are greater than 90 days past due, and are classified as nonperforming corporate bond investments in the nonperforming asset table in Note 3.

Additional information regarding each of the pooled trust preferred securities as of September 30, 2011 follows:

Cost, net of OTTI loss		Fair Value		Percent of Underlying Collateral Performing			Percent of Underlying Collateral in Deferral			Percent of Underlying Collateral in Default			Estimated incremental defaults required to break yield (1)	Current Moody's Rating	Cumulative Amount of OTTI Loss		Cumulative Other Comprehensive Loss, net of tax benefit
$	363,007	$	18,797		50.0	%		26.8	%		23.2	%	broken	C	$	636,993	$	227,179
	1,617,831		192,924		70.0	%		14.8	%		15.2	%	broken	Ca		382,169		940,439
	1,255,550		50,389		63.0	%		29.4	%		7.6	%	broken	Ca		744,450		795,406
	536,093		14,208		63.6	%		22.7	%		13.7	%	broken	C		463,907		344,444
$	3,772,481	$	276,318												$	2,227,519	$	2,307,468

(1)

A break in yield for a given tranche investment means that defaults and/or deferrals have reached such a level that the specific tranche would not receive all of the contractual principal and interest cash flow by its maturity, resulting in not a temporary shortfall, but an actual loss. This column represents the percentage of additional defaults among the currently performing collateral that would result in other-than-temporary loss.

The Company monitors these pooled trust preferred securities in its portfolio as to additional collateral issuer defaults and deferrals, which as a general rule, indicate that additional impairment may have occurred. Due to the continued stress on banks in general, and the issuer banks in particular, as a result of overall economic conditions, the Company may have to recognize additional impairment in future periods; however the extent, timing, and probability of any additional impairment cannot be reasonably estimated at this time.

The following roll forward reflects the amount related to credit losses recognized in earnings (in accordance with FASB Accounting Standards Codification (“ASC”) 320-10-35-34D:

Beginning balance as of December 31, 2010	$	2,052,867
Add: Amount related to the credit loss for which an other-than- temporary impairment was not previously recognized		-
Add: Increases to the amount related to the credit loss for which an other-than temporary impairment was previously recognized		189,127
Less: Realized losses for securities sold		-
Less: Securities for which the amount previously recognized in other comprehensive income was recognized in earnings because the Company 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: Increases in cash flows expected to be collected that are recognized over the remaining life of the security (See FASB ASC 320-10-35-35)		(14,475	)
Ending balance as of September 30, 2011	$	2,227,519

The carrying value of securities pledged to secure deposits and for other purposes amounted to $35.6 million and $42.6 million at September 30, 2011 and December 31, 2010, respectively.

The amortized cost and fair value of restricted securities follows:

	September 30, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value
Restricted investments:
Federal Home Loan Bank stock	$	2,616,400	$	-	$	-	$	2,616,400
Federal Reserve Bank stock		99,000		-		-		99,000
Community Bankers' Bank stock		50,000		-		-		50,000
	$	2,765,400	$	-	$	-	$	2,765,400

	December 31, 2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value
Restricted investments:
Federal Home Loan Bank Stock	$	3,239,300	$	-	$	-	$	3,239,300
Federal Reserve Bank Stock		99,000		-		-		99,000
Community Bankers' Bank Stock		50,000		-		-		50,000
	$	3,388,300	$	-	$	-	$	3,388,300

The Company's restricted investments include an equity investment in the Federal Home Loan Bank of Atlanta (“FHLB”). FHLB stock is generally viewed as a long-term investment and as a restricted investment which is carried at cost because there is no market for the stock other than the FHLB or member institutions. Therefore, when evaluating FHLB stock for impairment, its value is based on ultimate recoverability of the par value rather than recognizing temporary declines in value. The Company does not consider this investment to be other-than-temporarily impaired at September 30, 2011, and no impairment has been recognized.