Note 2.

Securities

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

	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Obligations of U.S. Government corportations and agencies	$	38,811,926	$	761,577	$	(1,672	)		39,571,831
Obligations of states and political subdivsions		6,791,235		604,331		(1,930	)		7,393,636
Corporate Bonds		3,793,807		-		(3,458,833	)		334,974
Mutual Funds		337,060		11,978		-			349,038
	$	49,734,028	$	1,377,886	$	(3,462,435	)	$	47,649,479

	December 31, 2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Obligations of U.S. Government corportations and agencies	$	40,020,633	$	353,292	$	(342,206	)		40,031,719
Obligations of states and political subdivsions		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.

	December 31, 2011
	Amortized Cost		Fair Value
Due in one year or less	$	1,027,766	$	1,030,684
Due after one year through five years		10,993,833		11,054,240
Due after five years through ten years		8,390,856		8,959,718
Due after ten years		28,984,513		26,255,799
Equity securities		337,060		349,038
	$	49,734,028	$	47,649,479

During 2011, the Company recognized an other than temporary impairment (OTTI) on its investment in pooled trust preferred securities of $189,127. The tax benefit applicable to this OTTI loss amounted to $39,179. There were three securities with a total amortized cost of $6.4 million sold in order to ensure the recognition of current value that had future exposure to prepayment risk and to extend the maturity. A gain of $73,997 was recognized. Additionally, the Bank sold 10,000 shares of Federal Home Loan Mortgage Corporation (“FHLMC”) preferred stock at a gain of $22,100. Sixteen bonds with a total amortized cost of $17.0 million were called during 2011 and a gain of $6,374 was recognized. Securities totaling $32.2 million were purchased, primarily U.S. Government corporation and agency bonds.

During 2010, the Company recognized an OTTI on its investment in pooled trust preferred securities of $1,394,153 and on its FHLMC preferred stock of $9,400. The tax benefit applicable to this OTTI loss amounted to $477,208. During 2010, nine securities with a total amortized cost of $9.9 million were sold at a gain of $541,109. Eight of these bonds were sold in order to ensure the recognition of current value that had future exposure to prepayment risk, and one bond was sold due to its relatively longer-term contractual duration and inherent extension risk of an additional two years duration if market rates were to increase in the future. The tax expense on these gains on sale totaled $183,977.

During 2009, the Company recognized an OTTI on its investment in pooled trust preferred securities of $658,734. The tax benefit applicable to this OTTI loss amounted to $223,963. Silverton Bank was closed by regulators on May 1, 2009. During the second quarter of 2009, the Company recorded impairment of the entire investment totaling $112,900. There was no tax benefit applicable to this OTTI loss. There were no securities sold in 2009.

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 December 31, 2011 and 2010.

	Less than 12 Months					12 Months or More					Total
December 31, 2011	Fair Value		Unrealized (Losses)			Fair Value		Unrealized (Losses)			Fair Value		Unrealized (Losses)

Obligations of U.S. Government, corporations and agencies	$	1,997,300	$	(1,672	)	$	-	$	-		$	1,997,300	$	(1,672	)
Obligations of states and political subdivisions		514,895		(1,930	)		-		-			514,895		(1,930	)
Corporate bonds		-		-			334,974		(3,458,833	)		334,974		(3,458,833	)
Total temporary impaired securities	$	2,512,195	$	(3,602	)	$	334,974	$	(3,458,833	)	$	2,847,169	$	(3,462,435	)

	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 12 month period or more at December 31, 2011consisted of four corporate bonds with a cost basis net of 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 December 31, 2011. All four bonds totaling $334,974 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 December 31, 2011 follows:

Cost basis		Fair Value		Percent of Underlying Collateral Performing			Percent of Underlying Collateral in Deferral			Percent of Underlying Collateral in Default			Estimated incremental default required to break yield (1)	Current Moody's Rating	Cumulative Amount of OTTI Loss		Cumulative Other Comprehensive Loss, net of tax benefit
$	368,187	$	5,217		50.00	%		25.70	%		24.30	%	broken	C	$	631,812	$	239,560
	1,621,272		285,758		67.70	%		17.10	%		15.20	%	broken	Ca		378,729		881,439
	1,263,730		30,978		67.60	%		25.00	%		7.40	%	broken	Ca		736,270		813,616
	540,618		13,021		68.60	%		17.70	%		13.70	%	broken	C		459,382		348,214
$	3,793,807	$	334,974												$	2,206,193	$	2,282,829

(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 impairment and 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 anticipates having 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 ASC 320-10-35-34D):

	Available for sale
Beginning balance as of December 31, 2010	$	2,062,267

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		9,400

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)		35,801
Ending balance as of December 31, 2011	$	2,206,193

The carrying value of securities pledged to secure deposits and for other purposes amounted to $37.3 million and $42.4 million at December 31, 2011 and 2010, respectively.

The amortized cost and fair value of restricted securities follows:

	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value
Restricted investments:								-
Federal Home Loan Bank Stock	$	2,394,200		-		-	$	2,394,200
Federal Reserve Bank Stock		99,000		-		-		99,000
Community Bankers' Bank Stock		50,000		-		-		50,000
	$	2,543,200	$	-	$	-	$	2,543,200

	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 December 31, 2011, and no impairment has been recognized.