8. Securities

Amortized cost and estimated fair value of securities available for sale are as follows:

	September 30, 2011
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	139,497,422	$	3,476,346	$	25,260	$	142,948,508
Mortgage-backed securities, residential		54,007,115		3,214,050		510		57,220,655
Collateralized Mortgage obligations		8,285,864		183,403		760		8,468,507
Obligations of states and political subdivisions		44,622,411		2,017,069		3,189		46,636,291
Corporate bonds and notes		13,475,088		476,400		159,341		13,792,147
SBA loan pools		2,265,412		40,306		-		2,305,718
Trust Preferred securities		2,536,347		105,236		360,735		2,280,848
Corporate stocks		788,129		4,652,367		14,574		5,425,922
Total	$	265,477,788	$	14,165,177	$	564,369	$	279,078,596


	December 31, 2010
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	101,426,799	$	916,547	$	211,829	$	102,131,517
Mortgage-backed securities, residential		60,379,269		2,385,036		2,672		62,761,633
Obligations of states and political subdivisions		38,143,972		672,067		50,947		38,765,092
Corporate bonds and notes		11,019,343		674,847		-		11,694,190
Trust Preferred securities		2,597,993		134,561		388,460		2,344,094
Corporate stocks		744,763		5,112,755		9,082		5,848,435
Total	$	214,312,139	$	9,895,813	$	662,990	$	223,544,961

Amortized cost and estimated fair value of securities held to maturity are as follows:

	September 30, 2011
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Obligations of states and political subdivisions	$	7,585,671	$	897,882	$	-	$	8,483,553

Total	$	7,585,671	$	897,882	$	-	$	8,483,553

	December 31, 2010
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value

Obligations of states and political subdivisions	$	7,715,123	$	582,269	$	-	$	8,297,392

Total	$	7,715,123	$	582,269	$	-	$	8,297,392

The amortized cost and estimated fair value of debt securities are shown 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:

	September 30, 2011
	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Within One Year	$	45,528,688	$	45,906,777	$	2,048,903	$	2,083,328
After One, But Within Five Years		193,393,110		200,601,911		3,580,269		4,007,464
After Five, But Within Ten Years		21,308,173		22,862,763		1,956,499		2,392,761
After Ten Years		4,459,688		4,281,223		-		-
Total	$	264,689,659	$	273,652,674	$	7,585,671	$	8,483,553

Proceeds from sales and calls of securities available for sale for the three and nine months ended September 30, 2011 were $11,085,156 and $67,741,210, respectively. Realized gross gains on these sales and calls were $428,882 and $1,108,091 during the three and nine month periods ended September 30, 2011, respectively. There were no sales or calls of securities available for sale that resulted in losses for the three or nine-months ended September 30, 2011.

Proceeds from sales and calls of securities available for sale for the three and nine months ended September 30, 2010, were $20,000,000 and $50,440,459, respectively. There were no realized gross gains on these sales and calls were during the three month period ended September 30, 2010 and realized gross gains on these sales and calls were $451,094 during nine month period ended September 30, 2010. There were no sales or calls of securities available for sale that resulted in losses for the three or nine-months ended September 30, 2010.

The following table summarizes the investment securities available for sale and held to maturity with unrealized losses at September 30, 2011 and December 31, 2010 by aggregated major security type and length of time in a continuous unrealized loss position:

	Less than 12 months				12 months or longer				Total
September 30, 2011	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. Government and US Government sponsored enterprises	$	14,874,740		25,260	$	-	$	-	$	14,874,740	$	25,260
Mortgage-backed securities, residential		187,675	$	510		-		-		187,675		510
Collateralized mortgage obligations		1,167,696		760		-		-		1,167,696		760
Obligations of states and political subdivisions		363,989		3,189		-		-		363,989		3,189
Corporate bonds and notes		5,308,085		159,341		-		-		5,308,085		159,341
Trust preferred securities		-		-		294,910		360,735		294,910		360,735
Corporate stocks		3,353		285		35,703		14,289		39,056		14,574
Total temporarily impaired securities	$	21,905,538	$	189,345	$	330,613	$	375,024	$	22,236,151	$	564,369


	Less than 12 months				12 months or longer				Total
December 31, 2010	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. Government and US Government sponsored enterprises	$	25,543,154	$	211,829	$	-	$	-	$	25,543,154	$	211,829
Mortgage-backed securities, residential		844,587		2,672		-		-		844,587		2,672
Obligations of states and political subdivisions		7,746,912		50,947		-		-		7,746,912		50,947
Trust preferred securities		-		-		334,585		388,460		334,585		388,460
Corporate stocks		-		-		40,910		9,082		40,910		9,082
	$	34,134,653	$	265,448	$	375,495	$	397,542	$	34,510,148	$	662,990

Other-Than-Temporary Impairment

In determining OTTI for debt securities, management considers many factors, including: (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, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Corporation has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

In order to determine OTTI for purchased beneficial interests, the Corporation compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows. OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

When OTTI occurs, for either debt securities or purchased beneficial interests, the amount of the OTTI recognized in earnings depends on whether an entity 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 any current-period credit loss. If an entity intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss, the OTTI shall be recognized in earnings equal to the entire difference between the investment's amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

As of September 30, 2011, the majority of the Corporation's unrealized losses in the investment securities portfolio related to two pooled trust preferred securities. The decline in fair value on these securities 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 these securities. This fact combined with the current illiquidity in the market makes it unlikely that the Corporation would be able to recover its investment in these securities if the securities were sold at this time. One of these securities has been previously written down through the income statement to an amount considered to be immaterial to the financial statements. Therefore management is no longer analyzing this security for further impairment.

Our analysis of these investments includes $629 thousand book value of a collateralized debt obligation ("CDO") which is a pooled trust preferred security. This security was rated high quality at inception, but at September 30, 2011 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 the 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.

In determining the amount of "currently performing" collateral for the purposes of modeling the expected future cash flows, management analyzed the default and deferral history over the past 3 years. This review indicated significant increases in the number and amount of defaults and deferrals by the issuers. Additionally, management has noted the correlation between the rising levels of non-performing loans as a percent of tangible equity plus loan loss reserves by those issuers that have defaulted and/or deferred interest payments. Therefore management has used this ratio as a primary indicator to project the levels of future defaults for modeling purposes. Management recognizes the potential of defaults and deferrals to continue over the next 12 to 24 months. The operating environment remains difficult for community and regional banks in many parts of the country, which could lead to higher default and deferral levels. Seventy-four depository institutions were closed by regulators during the first nine months of 2011.

The following table provides detailed information related to the pooled trust preferred security analyzed at September 30, 2011:

Description	Actual Deferrals as % of Outstanding Collateral	Actual Defaults as % of Original Collateral	Excess Subordination as % of Performing Collateral	Expected Additional Defaults as % of Performing Collateral

TPREF Funding II, Ltd. (Class B)	17.90%	16.06%	-44.27%	16.14%

In the table above, "Excess Subordination as % of Performing Collateral" was calculated by dividing the difference between the total face value of performing collateral less the face value of all outstanding note balances not subordinate to our investment, by the total face value of performing collateral. This ratio measures the extent to which there may be tranches within a pooled trust preferred structure available to absorb credit losses before the Corporation's security would be impacted. As mentioned earlier, the levels of defaults and deferrals in this pool has increased significantly in recent months, which have resulted in a significant reduction in the amount of performing collateral. As a result, the negative Excess Subordination as a % of Performing Collateral percentages shown above indicate there is no support from subordinate tranches available to absorb losses before the Corporation's security would be impacted. A negative ratio is not the only factor to consider when determining if OTTI should be recorded. Other factors affect the timing and amount of cash flows available for payments to investors such as the excess interest paid by the issuers, as issuers typically pay higher rates of interest than are paid out to investors.

Upon completion of the September 30, 2011 analysis, our model indicated an additional other-than-temporary impairment of $67 thousand on the TPREF Funding II security. This security remained classified as available for sale and represented $352 thousand of the unrealized losses reported at September 30, 2011. Payments continue to be made as agreed on the TPREF Funding II security.

When the analysis was conducted at September 30, 2011, 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. This analysis indicated a 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. This comparison indicated a slight decrease in value during the quarter, based on factors other than credit, which resulted in a loss reported in other comprehensive income. 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 other-than-temporary impairment recognized in accumulated other comprehensive income was $220,459 and $265,018 for securities available for sale at September 30, 2011 and September 30, 2010, respectively.

The table below presents a roll forward of the cumulative credit losses recognized in earnings for the three and nine-month periods ending September 30, 2011 and 2010:

	2011		2010
Beginning balance, January 1,	$	3,438,673	$	3,045,668
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		393,005

Ending balance, September 30,	$	3,506,073	$	3,438,673

Beginning balance, July 1,	$	3,438,673	$	3,382,293
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		56,380

Ending balance, September 30,	$	3,506,073	$	3,438,673