Investment Securities

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements

Investment Securities

2. INVESTMENT SECURITIES

Debt and equity securities have been classified in the consolidated balance sheets according to management’s intent. The amortized costs of securities as shown in the consolidated balance sheets and their estimated fair values at December 31 were as follows:

Securities Available For Sale:

December 31, 2011		Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
State and municipal securities	$	2,724,000	$	117,597	$	0	$	2,841,597
Residential mortgage-backed securities		24,345,585		1,343,250		0		25,688,835
Total debt securities AFS		27,069,585		1,460,847		0		28,530,432
Equity securities		174,549		0		64,149		110,400
Total securities AFS	$	27,244,134	$	1,460,847	$	64,149	$	28,640,832

December 31, 2010		Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
U.S. Government Treasury securities	$	11,061,282	$	0	$	427,752	$	10,633,530
State and municipal securities		5,655,242		190,509		0		5,845,751
Residential mortgage-backed securities		37,423,357		1,090,228		114,746		38,398,839
Total debt securities AFS		54,139,881		1,280,737		542,498		54,878,120
Equity securities		222,664		0		154,863		67,801
Total securities AFS	$	54,362,545	$	1,280,737	$	697,361	$	54,945,921

Securities Held to Maturity:

December 31, 2011		Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
State and municipal securities	$	29,918,408	$	1,137,322	$	5,674	$	31,050,056
Residential mortgage-backed securities		22,420,320		688,147		0		23,108,467
Total securities HTM	$	52,338,728	$	1,825,469	$	5,674	$	54,158,523

December 31, 2010		Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
U.S. Government Agency securities	$	6,999,651	$	13,189	$	5,080	$	7,007,760
State and municipal securities		17,682,419		252,077		138,934		17,795,562
Residential mortgage-backed securities		21,573,376		276,011		82,513		21,766,874
Total securities HTM	$	46,255,446	$	541,277	$	226,527	$	46,570,196

At December 31, 2011, securities with a carrying value of $40,597,106 and a market value of $42,554,884 were pledged as collateral for public deposits and other purposes as required by law. Of these amounts, approximately $11,000,000 was overpledged and could be released if necessary for liquidity needs. At December 31, 2010, securities with a carrying value of $48,848,556 and a market value of $50,021,511 were pledged as collateral for public deposits and Federal Home Loan Bank (“FHLB”) Advances. At December 31, 2011, we had only 1-4 family mortgage loans pledged to secure FHLB advances. In 2010, we pledged a combination of securities and 1-4 family mortgage loans to secure FHLB advances. The FHLB requires the Bank to hold a minimum investment of stock, based on membership and the level of activity. As of December 31, 2011, this stock investment was $1,786,500.

There were no investments in obligations of any state or municipal subdivisions which exceeded 10% of the Corporation’s stockholders’ equity at December 31, 2011.

The amortized cost and estimated fair value of securities at December 31, 2011, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.

Available for Sale:		Amortized Cost		Estimated Fair Value
Amounts maturing in:
One year or less	$	1,475,000	$	1,487,331
After one through five years		1,249,000		1,354,266
After five through ten years		9,889,678		10,307,585
After ten years		14,455,907		15,381,250
Total debt securities AFS	$	27,069,585	$	28,530,432
Equity securities		174,549		110,400
Total securities AFS	$	27,244,134	$	28,640,832
Held to Maturity:		Amortized Cost		Estimated Fair Value
Amounts maturing in:
One year or less	$	3,348,361	$	3,353,004
After one through five years		9,994,842		10,349,120
After five through ten years		15,067,385		15,697,860
After ten years		23,928,140		24,758,539
Total securities HTM	$	52,338,728	$	54,158,523

For the years ended December 31, 2011, 2010, and 2009, proceeds from sales of securities available for sale amounted to $24,846,529, $17,856,535, and $9,849,289, respectively. Reported net realized gains amounted to $381,312, $534,973, and $255,324, respectively. The net gain in 2011 was due to the sale of $13,504,733 of longer-term residential mortgage-backed securities and our entire portfolio of U.S. Government Treasury securities. The net gain in 2010 was due to the sale of $11,634,167 of longer-term residential mortgage-backed securities to shorten the duration of our earning assets. Also, the remaining $6,222,368 of corporate notes were sold in 2010 to reduce credit risk in the portfolio. The gain in 2009 was mainly due to selling a portion of our longer-term residential mortgage-backed securities.

Information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that individual securities have been in continuous loss position, follows:

December 31, 2011	Less Than Twelve Months				Twelve Months or More
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
Securities Available for Sale
Temporarily impaired debt securities:
State and municipal securities	$	0	$	0	$	0	$	0
Residential mortgage-backed securities		0		0		0		0
Total debt securities AFS		0		0		0		0
Temporarily impaired equity securities		64,149		110,400		0		0
Other-than-temporarily impaired equity securities		0		0		0		0
Total securities available for sale	$	64,149	$	110,400	$	0	$	0
Securities Held to Maturity
Temporarily impaired debt securities:
State and municipal securities	$	5,674	$	1,142,423	$	0	$	0
Residential mortgage-backed securities		0		0		0		0
Total securities held to maturity	$	5,674	$	1,142,423	$	0	$	0

December 31, 2010	Less Than Twelve Months				Twelve Months or More
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
Securities Available for Sale
Temporarily impaired debt securities:
U.S. Government Treasury securities	$	427,752	$	10,633,530	$	0	$	0
State and municipal securities		0		0		0		0
Residential mortgage-backed securities		114,746		6,443,200		0		0
Total debt securities AFS		542,498		17,076,730		0		0
Temporarily impaired equity securities		0		0		154,863		67,801
Other-than-temporarily impaired equity securities		0		0		0		0
Total securities available for sale	$	542,498	$	17,076,730	$	154,863	$	67,801
Securities Held to Maturity
Temporarily impaired debt securities:
U.S. Government Agency	$	5,080	$	1,994,920	$	0	$	0
State and municipal securities		138,934		6,795,789		0		0
Residential mortgage-backed securities		82,513		3,819,645		0		0
Total securities held to maturity	$	226,527	$	12,610,354	$	0	$	0

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

In March 2011, the Corporation sold the remaining shares of Freddie Mac preferred stock. Common stock of a FDIC problem bank held in the Corporation’s investment portfolio was deemed impaired and a loss of $12,265 was recognized in the second quarter of 2011.

At December 31, 2011, four debt securities had unrealized losses with aggregate depreciation of 0.5% from the Corporation’s amortized cost basis. At December 31, 2010, forty-one debt securities had unrealized losses with aggregate depreciation of 2.5%. These unrealized losses relate principally to current interest rates for similar types of securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government, its agencies, or other governments, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. Management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available-for-sale. Also, no declines in debt securities are deemed to be other-than-temporary.