NOTE 4 SECURITIES

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

	September 30, 2013
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	162,811,654	$	2,249,365	$	431,143	$	164,629,876
Mortgage-backed securities, residential		37,566,626		1,466,571		210		39,032,987
Collateralized mortgage obligations		1,475,620		25,081		-		1,500,701
Obligations of states and political subdivisions		34,172,574		1,066,825		4,862		35,234,537
Corporate bonds and notes		7,389,928		105,671		11,266		7,484,333
SBA loan pools		1,512,692		27,582		-		1,540,274
Trust Preferred securities		2,525,133		141,392		114,725		2,551,800
Corporate stocks		690,354		6,612,224		1,969		7,300,609
Total	$	248,144,581	$	11,694,711	$	564,175	$	259,275,117

	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:

	September 30, 2013
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Obligations of states and political subdivisions	$	5,523,105	$	484,520	$	-	$	6,007,625
Time deposits with other financial institutions		1,020,680		18,995		-		1,039,675
Total	$	6,543,785	$	503,515	$	-	$	7,047,300

	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:

	September 30, 2013
	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Within One Year	$	32,358,309	$	32,675,479	$	2,086,483	$	2,124,736
After One, But Within Five Years		157,176,957		159,943,408		3,069,714		3,305,202
After Five, But Within Ten Years		16,734,998		16,767,359		1,387,588		1,617,362
After Ten Years		629,025		514,300		-		-
		206,899,289		209,900,546		6,543,785		7,047,300
Mortgage-backed securities, residential		37,566,626		39,032,987
Collateralized mortgage obligations		1,475,620		1,500,701
SBA loan pools		1,512,692		1,540,274
Total	$	247,454,227	$	251,974,508	$	6,543,785	$	7,047,300

The proceeds from sales and calls of securities resulting in gains or losses at September 30, 2013 and September 30, 2012 are listed below:

		2013		2012
Proceeds	$	10,533,633	$	70,370,086
Gross gains	$	1,228	$	300,516
Gross losses	$	-	$	-
Tax expense	$	472	$	115,518

The following tables summarize the investment securities available for sale with unrealized losses at September 30, 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
September 30, 2013	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. Government and U.S. Government sponsored Enterprises	$	61,924,270	$	431,143	$	-	$	-	$	61,924,270	$	431,143
Mortgage-backed securities, residential		113,804		210		-		-		113,804		210
Obligations of states and political subdivisions		1,003,268		4,579		250,635		283		1,253,903		4,862
Corporate bonds		2,735,068		11,266		-		-		2,735,068		11,266
Trust preferred securities		-		-		514,300		114,725		514,300		114,725
Corporate stocks		-		-		1,668		1,969		1,668		1,969
Total temporarily impaired securities	$	65,776,410	$	447,198	$	766,603	$	116,977	$	66,543,013	$	564,175

	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 September 30, 2013, the majority of the Corporation’s unrealized losses in the investment securities portfolio related to obligations of U.S. Government and U.S. Government sponsored enterprises. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Corporation does not have the intent to sell these securities and it is likely that it will not be required to sell these securities before their anticipated recovery, the Corporation does not consider these securities to be other-than-temporarily impaired at September 30, 2013.

As of September 30, 2013, $114,725 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 September 30, 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 September 30, 2013 analysis, our model indicated no additional OTTI on this CDO. This security remained classified as available for sale and quarterly interest payments continue to be made.

When conducting the September 30, 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 $74,482 and $117,118, net of tax for securities available for sale at September 30, 2013 and December 31, 2012, respectively.

The tables below present a roll forward of the cumulative credit losses recognized in earnings for the three and nine-month periods ending September 30, 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, September 30,	$	3,506,073	$	3,506,073

Beginning balance, July 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, September 30,	$	3,506,073	$	3,506,073