NOTE 4 SECURITIES

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

	March 31, 2013
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	139,225,086	$	3,294,760	$	22,104	$	142,497,742
Mortgage-backed securities, residential		25,488,094		1,668,233		-		27,156,327
Collateralized mortgage obligations		2,912,794		37,515		-		2,950,309
Obligations of states and political subdivisions		38,450,901		1,579,392		927		40,029,366
Corporate bonds and notes		11,409,872		201,644		-		11,611,516
SBA loan pools		1,601,918		38,541		-		1,640,459
Trust Preferred securities		2,521,276		130,561		132,200		2,519,637
Corporate stocks		734,384		6,168,863		1,969		6,901,278
Total	$	222,344,325	$	13,119,509	$	157,200	$	235,306,634

	December 31, 2012
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	138,041,393	$	3,549,821	$	-	$	141,591,214
Mortgage-backed securities, residential		29,591,883		1,923,366		-		31,515,249
Collateralized mortgage obligations		3,494,642		48,718		-		3,543,360
Obligations of states and political subdivisions		39,174,595		1,641,510		1,383		40,814,722
Corporate bonds and notes		11,412,167		239,468		-		11,651,635
SBA loan pools		1,682,736		41,404		-		1,724,140
Trust preferred securities		2,519,379		134,959		183,425		2,470,913
Corporate stocks		736,495		5,645,753		7,718		6,374,530
Total	$	226,653,290	$	13,224,999	$	192,526	$	239,685,763

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

	March 31, 2013
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Obligations of states and political subdivisions	$	7,626,274	$	679,909	$	-	$	8,306,183
Time deposits with other financial institutions		2,271,938		32,924		-		2,304,862
Total		9,898,212		712,833		-		10,611,045

	December 31, 2012
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Obligations of states and political subdivisions	$	5,748,453	$	673,033	$	-	$	6,421,486

The amortized cost and estimated fair value of debt securities are shown below 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. Securities not due at a single maturity date are shown separately:

	March 31, 2013
	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized			Fair
	Cost		Value		Cost			Value
Within One Year	$	26,909,544	$	27,093,364	$	4,869,367		$	4,943,587
After One, But Within Five Years		158,776,821		163,250,188		3,494,451			3,792,420
After Five, But Within Ten Years		5,291,745		5,817,884		1,534,394			1,875,038
After Ten Years		629,025		496,825		-			-
		191,607,135		196,658,261		9,898,212			10,611,045
Mortgage-backed securities, residential		25,488,094		27,156,327		-			-
Collateralized mortgage obligations		2,912,794		2,950,309		-				-
SBA loan pools		1,601,918		1,640,459			-			-
Total	$	221,609,941	$	228,405,356	$	9,898,212		$	10,611,045

The proceeds from sales and calls of securities resulting in gains or losses at March 31, 2013 and March 31, 2012 are listed below:

	2013		2012
Proceeds	$	-	$	25,679,688
Gross gains	$	-	$	297,169
Gross losses	$	-	$	-
Tax expense	$	-	$	115,666

The following tables summarize the investment securities available for sale with unrealized losses at March 31, 2013 and December 31, 2012 by aggregated major security type and length of time in a continuous unrealized loss position:

	Less than 12 months				12 months or longer				Total
March 31, 2013	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	21,733,280	$	22,104	$	-	$	-	$	21,733,280	$	22,104
Obligations of states and political subdivisions		-		-		250,645		927		250,645		927
Trust preferred securities		-		-		496,825		132,200		496,825		132,200
Corporate stocks		-		-		1,669		1,969		1,669		1,969
Total temporarily impaired securities	$	21,733,280	$	22,104	$	749,139	$	135,096	$	22,482,419	$	157,200

	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2012	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of states and political subdivisions	$	-	$	-	$	430,166	$	1,383	$	430,166	$	1,383
Trust preferred securities		-		-		445,600		183,425		445,600		183,425
Corporate stocks		-		-		45,912		7,718		45,912		7,718
Total temporarily impaired securities	$	-	$	-	$	921,678	$	192,526	$	921,678	$	192,526

Other-Than-Temporary Impairment

As of March 31, 2013, the majority of the Corporation's unrealized losses in the investment securities portfolio related to a CDO consisting of a pool of trust preferred securities. The decline in fair value on this security 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 this security. This fact combined with the current illiquidity in the market makes it unlikely that the Corporation would be able to recover its investment in this security if it was sold at this time.

Our analysis of this investment includes a $629,025 amortized cost of a CDO consisting of a pool of trust preferred securities. This security was rated high quality at inception, but at March 31, 2013 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.

Upon completion of the March 31, 2013 analysis, our model indicated no additional OTTI on this CDO. This security remained classified as available for sale and represented $132,200 of the unrealized losses reported at March 31, 2013. Quarterly interest payments continue to be made on this security.

When conducting the March 31, 2013 analysis, 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. The analysis indicated no 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. 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 OTTI recognized in accumulated other comprehensive income was $85,239 and $188,878, net of tax for securities available for sale at March 31, 2013 and 2012, respectively.

The tables below present a roll forward of the cumulative credit losses recognized in earnings for the three-month periods ending March 31, 2013 and 2012:

	2013		2012
Beginning balance, January 1,	$	3,506,073	$	3,506,073
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		-		-
Ending balance, March 31,	$	3,506,073	$	3,506,073