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Investment Securities
 12 Months Ended
Dec. 31, 2013
Investments, Debt and Equity Securities [Abstract]  
Investment Securities
Note 3. Investment Securities
 
Investment securities are summarized as follows:
                                 
                                                              
  
 
    
Gross
    
Gross
        
   
Amortized
    
Unrealized
    
Unrealized
    
Fair
  
December 31, 2013
  
Cost
    
Gains
    
Losses
    
Value
  
                         
 Available for sale:
                        
U.S. Government agencies
   $ 28,360     $ 575,000     $ -     $ 603,360  
State and municipal
     32,395,630       360,384       1,746,943       31,009,071  
Corporate trust preferred
     333,395       -       109,403       223,992  
Mortgage-backed
     43,512,419       688,095       1,723,255       42,477,259  
                                 
    $ 76,269,804     $ 1,623,479     $ 3,579,601     $ 74,313,682  
 
 
 
                                 
                                                              
  
 
    
Gross
    
Gross
        
   
Amortized
    
Unrealized
    
Unrealized
    
Fair
  
December 31, 2012
  
Cost
    
Gains
    
Losses
    
Value
  
                         
 Available for sale:
                        
U.S. Government agencies
   $ 28,360     $ -     $ 320     $ 28,040  
State and municipal
     38,528,451       2,623,768       14,797       41,137,422  
Corporate trust preferred
     349,646       -       65,116       284,530  
Mortgage-backed
     57,494,784       1,597,567       52,076       59,040,275  
                                 
    $ 96,401,241     $ 4,221,335     $ 132,309     $ 100,490,267  
 
                                 
                   
  
 
    
Gross 
       Gross    
 
  
   
Amortized
     Unrealized     Unrealized    
Fair
  
December 31, 2011
  
Cost
     Gains     Losses    
Value
  
                         
 Available for sale:
                        
U.S. Government agencies
   $ 28,360     $ -     $ -     $ 28,360  
State and municipal
     37,165,358       1,808,576       46,811       38,927,123  
Corporate trust preferred
     635,239       -       200,015       435,224  
Mortgage-backed
     61,972,542       1,606,338       103,032       63,475,848  
                                 
    $ 99,801,499     $ 3,414,914     $ 349,858     $ 102,866,555  
 
The gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2013 are as follows:
                                                 
   
Less than 12 months
    
12 months or more
    
Total
  
   
Fair
    
Unrealized
    
Fair
    
Unrealized
    
Fair
    
Unrealized
  
   
Value
    
Loss
    
Value
    
Loss
    
Value
    
Loss
  
Obligations of U.S. Government agencies
   $ -     $ -     $ -     $ -     $ -     $ -  
State and Municipal
     15,166,247       1,702,555       255,612       44,388       15,421,859       1,746,943  
Corporate trust preferred
     -       -       224,275       109,403       224,275       109,403  
Mortgaged-backed
     21,834,878       1,212,205       6,738,723       511,050       28,573,601       1,723,255  
                                                 
    $ 37,001,125     $ 2,914,760     $ 7,218,610     $ 664,841     $ 44,219,735     $ 3,579,601  
At December 31, 2013, the Company owned one pooled trust preferred security issued by Regional Diversified Funding, Senior notes with a Fitch credit rating of C, which is included in the securities described above. The market for these securities at December 31, 2013 was not active and markets for similar securities were also not active. As a result, the Company had cash flow testing performed as of December 31, 2013 by an unrelated third party in order to measure the possible extent of other-than-temporary-impairment (“OTTI”). This testing assumed future defaults on the currently performing financial institutions of 150 basis points applied annually with a 0% recovery on both current and future defaulting financial institutions. As a result of this testing, no write-down was required in 2012. Write-downs of $15,581 and $21,928 were taken on this security during 2013 and 2011, respectively.
 
The market values for these securities (and any securities other than those issued or guaranteed by the U.S. Treasury) are very depressed relative to historical levels. Therefore, a low market price for a particular security may only provide evidence of stress in the credit markets overall rather than being an indicator of credit problems with a particular issuer.
 
As noted above, during the first quarter of 2011, the Company took an additional write down of $21,928 on the trust preferred securities to bring the book value into alignment with the net present value of $635,228 which was arrived at as the result of cash flow testing performed by an unrelated third party in order to measure the extent of other-than-temporary-impairment (“OTTI”). This testing assumed future defaults on the currently performing financial institutions of 75 basis points applied annually with a 15% recovery after a two year lag on both current and future defaulting financial institutions. At year-end, the Company retested for possible OTTI by using a more stringent test by recalculating the net present value using a default rate of 150 basis points applied annually with a 0% recovery. The testing resulted in a net present value above the current book value.
 
The stock of Maryland Financial Bank is not readily marketable. During 2011, the stock was written down $70,000 due to the price of a new stock offering, which price was a discount to par.
 
Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
 
As of December 31, 2013, management had the ability and intent to hold the securities classified as available for sale for a period of time sufficient for a recovery of cost. On December 31, 2013, the Bank held 10 investment securities having continuous unrealized loss positions for more than 12 months. Except as noted above, management has determined that all unrealized losses are either due to increases in market interest rates over the yields available at the time the underlying securities were purchased, current call features that are nearing, and the effect the sub-prime market has had on all mortgaged-backed securities. The Bank has no mortgaged-backed securities collateralized by sub-prime mortgages. The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the remaining securities are impaired due to reasons of credit quality. Accordingly, as of December 31, 2013, management believes the impairments detailed in the table above are temporary and no additional impairment loss is required to be realized in the Company’s consolidated income statement.
 
A rollforward of the cumulative other-than-temporary credit losses recognized in earnings for all debt and equity securities for which a portion of an other-then-temporary loss is recognized in accumulated other comprehensive loss is as follows:
                         
   
2013
    
2012
    
2011
  
                   
Estimated credit losses, beginning of year
   $ 3,246,915     $ 3,246,915     $ 3,154,987  
Credit losses - no previous OTTI recognized
     -       -       70,000  
Credit losses - previous OTTI recognized
     15,581       -       21,928  
                         
Estimated credit losses, end of year
   $ 3,262,496     $ 3,246,915     $ 3,246,915  

Contractual maturities of investment securities at December 31, 2013, 2012, and 2011 are shown below. Actual maturities may differ from contractual maturities because debtors may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities have no stated maturity and primarily reflect investments in various Pass-through and Participation Certificates issued by the Federal National Mortgage Association and the Government National Mortgage Association. Repayment of mortgage-backed securities is affected by the contractual repayment terms of the underlying mortgages collateralizing these obligations and the current level of interest rates.
                 
   
Available for Sale
  
   
Amortized
    
Fair
  
December 31, 2013
  
Cost
    
Value
  
             
    Due within one year   $ -     $ -  
Due over one to five years
     -       -  
Due over five to ten years
     -       -  
Due over ten years
     32,729,025       31,233,063  
Mortgage-backed, due in monthly installments
     43,540,779       43,080,619  
                 
    $ 76,269,804     $ 74,313,682  
 
                 
   
Available for Sale
  
   
Amortized
    
Fair
  
December 31, 2012
  
Cost
    
Value
  
                 
Due within one year  
   $ 125,021     $ 125,745  
Due over one to five years   
     -       -  
Due over five to ten years
     400,000       415,028  
Due over ten years
     38,353,076       40,881,179  
Mortgage-backed, due in monthly installments
     57,523,144       59,068,315  
                 
    $ 96,401,241     $ 100,490,267  
 
 
 
                 
   
Available for Sale
  
   
Amortized
    
Fair
  
December 31, 2011
  
Cost
    
Value
  
                 
Due within one year
   $ -     $ -  
Due over one to five years
     1,032,792       1,046,248  
Due over five to ten years
     300,838       329,884  
Due over ten years
     36,466,967       37,986,215  
Mortgage-backed, due in monthly installments
     62,000,902       63,504,208  
                 
    $ 99,801,499     $ 102,866,555  
 
Proceeds from sales of available for sale securities prior to maturity totaled $25,626,845, $18,656,622, and $21,796,185 for the years ended December 31, 2013, 2012, and 2011, respectively. The Bank realized gains of $664,269 and losses of $318,938 on those sales for 2013. The Bank realized gains of $282,069 and losses of $119,475 on those sales for 2012. The Bank realized gains of $434,113 and losses of $25,467 on those sales for 2011. Realized gains and losses were calculated based on the amortized cost of the securities at the date of trade. Income tax expense relating to net gains on sales of investment securities totaled $136,216, $64,135, and $161,190 for the years ended December 31, 2013, 2012, and 2011, respectively.
 
The Bank has no derivative financial instruments required to be disclosed under ASC Topic 815, Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments.