(3) SECURITIES

Amortized cost and estimated fair value of securities available for sale at December 31, 2011 and 2010 are as

follows:

	2011				2010
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	149,140,715	$	152,079,770	$	101,426,799	$	102,131,517
Mortgage-backed securities, residential		48,129,271		50,766,605		60,379,269		62,761,633
Collateralized mortgage obligations		7,412,470		7,536,753		-		-
Obligations of states and political subdivisions		44,561,789		46,512,971		38,143,972		38,765,092
Corporate bonds and notes		13,461,675		13,684,198		11,019,343		11,694,190
SBA loan pools		1,915,419		1,949,606		-		-
Trust preferred securities		2,538,286		2,310,066		2,597,993		2,344,094
Corporate stocks		788,030		6,029,841		744,763		5,848,435
Total	$	267,947,655	$	280,869,810	$	214,312,139	$	223,544,961

Gross unrealized gains and losses on securities available for sale at December 31, 2011 and 2010, were as

follows:

	2011				2010
	Unrealized		Unrealized		Unrealized		Unrealized
	Gains		Losses		Gains		Losses
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	3,022,726	$	83,671	$	916,547	$	211,829
Mortgage-backed securities, residential		2,637,334		-		2,385,036		2,672
Collateralized mortgage obligations		135,603		11,321		-		-
Obligations of states and political subdivisions		1,954,265		3,083		672,067		50,947
Corporate bonds and notes		418,969		196,446		674,847		-
SBA loan pools		34,187		-		-		-
Trust preferred securities		132,516		360,735		134,561		388,460
Corporate stocks		5,246,655		4,844		5,112,755		9,082
Total	$	13,582,255	$	660,100	$	9,895,813	$	662,990

Total other-than-temporary impairment recognized in accumulated other comprehensive income was $220,459 for

securities available for sale at December 31, 2011.

The amortized cost and estimated fair value by years to contractual maturity (mortgage-backed securities are

shown as maturing based on the estimated average life at the projected prepayment speed) as of December 31,

2011, for debt securities available for sale are as follows:

	Maturing
			Within One Year				After One, But Within Five Years
			Amortized Cost		Fair Value		Amortized Cost		Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises		$	25,740,252	$	25,858,375	$	121,060,793	$	123,669,689
Mortgage-backed securities, residential			2,134,569		2,245,179		42,263,466		44,631,638
Collateralized mortgage obligations			3,119,236		3,130,576		4,293,234		4,406,177
Obligations of states and political subdivisions			7,634,726		7,704,707		26,737,178		27,581,658
Corporate bonds and notes			2,040,174		2,084,375		11,176,107		11,356,015
SBA loan pools			495,977		507,511		-		-
Trust preferred securities			942,133		1,024,531		-		-
Total		$	42,107,067	$	42,555,254	$	205,530,778	$	211,645,177

	Maturing
			After Five, But Within Ten Years				After Ten Years
			Amortized Cost		Fair Value		Amortized Cost		Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises		$	2,339,670	$	2,551,706	$	-	$	-
Mortgage-backed securities, residential			1,803,896		1,899,994		1,927,340		1,989,794
Collateralized mortgage obligations			-		-		-		-
Obligations of states and political subdivisions			10,189,885		11,226,606		-		-
Corporate bonds and notes			245,394		243,808		-		-
SBA loan pools			1,419,442		1,442,095		-		-
Trust preferred securities			-		-		1,596,153		1,285,535
Total		$	15,998,287	$	17,364,209	$	3,523,493	$	3,275,329

Actual maturities may differ from contractual maturities above because issuers may have the right to call or

prepay obligations with or without call or prepayment penalties.

The proceeds from sales and calls of securities resulting in gains or losses are listed below:

		2011		2010		2009
Proceeds on sales	$	35,741,211	$	10,520,033	$	10,834,755
Gross gains	$	1,108,091	$	451,094	$	784,589
Gross losses	$	-	$	428	$	-
Tax expense	$	423,191	$	174,345	$	303,526

Amortized cost and estimated fair value of securities held to maturity at December 31, 2011 and 2010 are as

follows:

	2011				2010
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Obligations of states and political subdivisions	$	8,311,921	$	9,175,956	$	7,715,123	$	8,297,392

Total	$	8,311,921	$	9,175,956	$	7,715,123	$	8,297,392

Securities held to maturity had unrecognized gains totaling $864,035 and $582,269 at December 31, 2011 and 2010,

respectively. There were no unrecognized losses at December 31, 2011 and December 31, 2010. There were no

sales of securities held to maturity in 2011 or 2010.

The contractual maturity of securities held to maturity is as follows at December 31, 2011:

	Maturing
			Within One Year				After One, But Within Five Years
			Amortized Cost		Fair Value		Amortized Cost		Fair Value
Obligations of states and political subdivisions		$	2,905,903	$	2,941,688	$	3,395,519	$	3,779,082

Total		$	2,905,903	$	2,941,688	$	3,395,519	$	3,779,082

	Maturing
			After Five, But Within Ten Years				After Ten Years
			Amortized Cost		Fair Value		Amortized Cost		Fair Value
Obligations of states and political subdivisions		$	2,010,499	$	2,455,186	$	-	$	-

Total		$	2,010,499	$	2,455,186	$	-	$	-

The following table summarizes the investment securities available for sale and held to maturity with unrealized

losses at December 31, 2011 and December 31, 2010 by aggregated major security type and length of time in a

continuous unrealized position:

	Less than 12 months				12 months or longer				Total
2011	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	27,365,920	$	83,671	$	-	$	-	$	27,365,920	$	83,671
Collateralized mortgage obligations		2,546,461		11,321		-		-		2,546,461		11,321
Obligations of states and political subdivisions		947,203		3,083		-		-		947,203		3,083
Corporate bonds		5,261,074		196,446		-		-		5,261,074		196,446
Trust preferred securities		-		-		294,910		360,735		294,910		360,735
Corporate stocks		1,669		1,969		47,117		2,875		48,786		4,844
Total temporarily impaired securities	$	36,122,327	$	296,490	$	342,027	$	363,610	$	36,464,354	$	660,100

	Less than 12 months				12 months or longer				Total
2010	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. Government and U.S. 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
Total temporarily impaired securities	$	34,134,653	$	265,448	$	375,495	$	397,542	$	34,510,148	$	662,990

Other-Than-Temporary-Impairment

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 December 31, 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 a $629 thousand book value collateralized debt obligation ("CDO")

which is a pooled trust preferred security. This security was rated high quality at inception, but at December 31,

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 each 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 (total shareholders' equity less intangible assets) 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. Ninety-

two depository institutions were closed by regulators during 2011.

The following table provides detailed information related to the pooled trust preferred security analyzed at

December 31, 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	%		-44.26	%		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.

During 2011, our analyses indicated 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 December 31, 2011. Payments continue to be made as agreed on this security.

When conducting the analyses, 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. During 2011, these

analyses indicated 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. During the year, these

comparisons indicated an increase in value based on factors other than credit which resulted in a gain 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 $238,180 for securities available for sale at December 31,2011

and December 31, 2010, respectively.

The table below presents a roll forward of the cumulative credit losses recognized in earnings for the periods

ended December 31, 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, December 31,	$	3,506,073	$	3,438,673

Interest and dividend income on securities for the years ended December 31, 2011, 2010 and 2009 was as follows:

Taxable:	2011		2010		2009
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	2,276,838	$	2,086,561	$	1,969,773
Mortgage-backed securities, residential		2,181,824		3,184,152		4,186,550
Collateralized mortgage obligations		188,160		-		-
Corporate bonds and notes		578,601		499,167		362,188
SBA Loan Pools		31,768		-		-
Trust preferred securities		241,626		271,500		306,102
Obligations of taxable states and political subdivisions		2,798		-		-
Corporate stocks		372,402		286,109		311,499
Exempt from Federal taxation:
Obligations of states and political subdivisions		1,378,753		1,188,193		1,131,610
Total	$	7,252,772	$	7,515,682	$	8,267,722

The fair value of securities pledged to secure public funds on deposit or for other purposes as required by law was

$201,938,127 at December 31, 2011 and $143,447,438 at December 31, 2010.

The table below shows the securities pledged to secure securities sold under agreements to repurchase at

December 31, 2011 and 2010:

	2011				2010
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Obligations of U.S. Government and U. S. Government sponsored enterprises	$	33,561,553	$	34,504,015	$	15,297,782	$	15,682,778
Mortgage-backed securities, residential		25,769,793		27,242,850		39,311,563		41,061,083
Collateralized mortgage obligations		1,807,795		1,854,019		-		-
Total	$	61,139,141	$	63,600,884	$	54,609,345	$	56,743,861

There are no securities of a single issuer (other than securities of U.S. Government sponsored enterprises) that

exceed 10% of shareholders' equity at December 31, 2011 or 2010.

The Corporation has an equity investment in Cephas Capital Partners, L.P. This small business investment

company was established for the purpose of providing financing to small businesses in market areas served by the

Corporation, including minority-owned small businesses and those that are anticipated to create jobs for the low

to moderate income levels in the targeted areas. As of December 31, 2011 and 2010, these investments totaled

$2,450,153 and $2,427,721, respectively, are included in other assets, and are accounted for under the equity

method of accounting.