Note 18 - Fair Value Measurements

12 Months Ended

Dec. 31, 2011

Fair Value Disclosures [Text Block]

18. Fair Value Measurements

ASC Topic 820, “Fair Value Measurements and Disclosures”, defines fair value, establishes a framework for measuring fair value, and sets forth disclosures about fair value measurements. ASC Topic 825, “Financial Instruments”, allows entities to choose to measure certain financial assets and liabilities at fair value. The Company has not elected the fair value option for any of its financial assets or liabilities.

ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. It also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. This Topic describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices for identical assets or liabilities in active markets that the entity has the ability to access at the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability.

Following is a description of the valuation method used for instruments measured at fair value on a recurring basis. For this disclosure, the Company only has available for sale investment securities that meet the requirement.

Available for sale investment securities

Valued primarily by independent third party pricing services under the market valuation approach that include, but not limited to, the following inputs:

· U.S. Treasury securities are priced using dealer quotes from active market makers and real-time trading systems.

· Marketable equity securities are priced utilizing real-time data feeds from active market exchanges for identical securities.

· Government-sponsored agency debt securities, obligations of states and political subdivisions, mortgage-backed securities, corporate bonds, and other similar investment securities are priced with available market information through processes using benchmark yields, matrix pricing, prepayment speeds, cash flows, live trading data, and market spreads sourced from new issues, dealer quotes, and trade prices, among others sources.

Available for sale investment securities are the Company’s only balance sheet item that meets the disclosure requirements for instruments measured at fair value on a recurring basis. Disclosures as of December 31, 2011 and 2010 are as follows:

			Fair Value Measurements Using
(In thousands) Available For Sale Investment Securities	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2011
Obligations of U.S. government-sponsored entities	$	96,163			$	96,163
Obligations of states and political subdivisions		84,619				84,619
Mortgage-backed securities – residential		408,863				408,863
Mortgage-backed securities – commercial		209				209
Mutual funds and equity securities		1,601	$	1,601
Corporate debt securities		6,364				6,364
Total	$	597,819	$	1,601	$	596,218	$	0
December 31, 2010
U.S. Treasury securities	$	1,044	$	1,044
Obligations of U.S. government-sponsored entities		41,613			$	41,613
Obligations of states and political subdivisions		74,799				74,799
Mortgage-backed securities – residential		319,930				319,930
Mutual funds and equity securities		190		190
Corporate debt securities		6,606				6,606
Total	$	444,182	$	1,234	$	442,948	$	0

The Company is required to measure and disclose certain other assets and liabilities at fair value on a nonrecurring basis in periods following their initial recognition. The Company’s disclosure about assets and liabilities measured at fair value on a nonrecurring basis consists of impaired loans and OREO. The carrying value of these assets are adjusted to fair value on a nonrecurring basis through impairment charges as described more fully below.

Impairment charges on loans are recorded by either an increase to the provision for loan losses and related allowance or by direct loan charge-offs. The fair value of impaired loans with specific allocations of the allowance for loan losses is measured based on recent appraisals of the underlying collateral. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Appraisers take absorption rates into consideration and adjustments are routinely made in the appraisal process to identify differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Impaired loans were $138 million and $130 million at year-end 2011 and 2010, respectively. The amount of impaired loans at December 31, 2011 includes $30.2 million that were adjusted downward to their estimated fair value of $26.0 million during 2011. For year-end 2010, the amount of impaired loans includes $17.7 million that were adjusted downward to their estimated fair value of $16.7 million.

OREO includes properties acquired by the Company through actual loan foreclosures and is carried at fair value less estimated costs to sell. Fair value of OREO at acquisition is generally based on third party appraisals of the property that includes comparable sales data and is considered as Level 3 inputs. The carrying value of each OREO property is updated at least annually and more frequently when market conditions significantly impact the value of the property. If the carrying amount of the OREO exceeds fair value less estimated costs to sell, an impairment loss is recorded through expense.

At December 31, 2011 and December 31, 2010 OREO was $38.2 million and $30.5 million, respectively. OREO at year-end 2011 includes $19.7 million that was written down to its estimated fair value of $14.8 million in 2011, resulting in an impairment charge of $4.9 million included in earnings. For year-end 2010, OREO includes $19.7 million that was written down to its estimated fair value of $15.8 million, resulting in an impairment charge of $3.9 million included in earnings. In addition to the impairment charges on OREO measured at fair value on a nonrecurring basis, the Company had a net loss on the sale of OREO of $516 thousand and $799 thousand for 2011 and 2010, respectively.

The following table represents the carrying amount of assets measured at fair value on a nonrecurring basis and still held by the Company as of the dates indicated. The amounts in the table only represent assets whose carrying amount has been adjusted by impairment charges to their estimated fair value subsequent to initial recognition in a manner as described above; therefore, these amounts will differ from the total amounts outstanding. Impaired loan amounts in the tables below exclude restructured loans since they are measured based on present value techniques, which are outside the scope of the fair value reporting framework.

			Fair Value Measurements Using
(In thousands) Description	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)		Impairment Charges
December 31, 2011
Impaired Loans
Real estate-construction and land development	$	18,636			$	18,636	$	1,009
Real estate mortgage-residential		8,160				8,160		328
Real estate mortgage-farmland and other commercial enterprises		12,928				12,928		2,918
Commercial and industrial		293				293
Consumer		47				47
Total-Impaired Loans	$	40,064			$	40,064	$	4,255
OREO
Real estate-construction and land development	$	8,826			$	8,826	$	3,754
Real estate mortgage-residential		1,217				1,217		140
Real estate mortgage-farmland and other commercial enterprises		4,785				4,785		1,007
Total-OREO	$	14,828			$	14,828	$	4,901

			Fair Value Measurements Using
(In thousands) Description	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)		Impairment Charges
December 31, 2010
Impaired Loans
Real estate-construction and land development	$	12,573			$	12,573	$	52
Real estate mortgage-residential		10,376				10,376		359
Real estate mortgage-farmland and other commercial enterprises		9,331				9,331		505
Commercial and industrial		133				133		27
Consumer		38				38
Total-Impaired Loans	$	32,451			$	32,451	$	943
OREO
Real estate-construction and land development	$	12,381			$	12,381	$	3,144
Real estate mortgage-residential		630				630		294
Real estate mortgage-farmland and other commercial enterprises		2,810				2,810		428
Total-OREO	$	15,821			$	15,821	$	3,866

Fair Value of Financial Instruments

The table that follows represents the estimated fair values of the Company’s financial instruments made in accordance with the requirements of ASC 825, “Financial Instruments”. ASC 825 requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet for which it is practicable to estimate that value. The estimated fair value amounts have been determined by the Company using available market information and present value or other valuation techniques. These derived fair values are subjective in nature, involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. ASC 825 excludes certain financial instruments and all nonfinancial instruments from the disclosure requirements. Accordingly, the aggregate fair value amounts presented are not intended to represent the underlying value of the Company.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments not presented elsewhere for which it is practicable to estimate that value.

Cash and Cash Equivalents, Accrued Interest Receivable, and Accrued Interest Payable

The carrying amount is a reasonable estimate of fair value.

Investment Securities Held to Maturity

Fair value equals quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

FHLB and Similar Stock

Due to restrictions placed on its transferability, it is not practicable to determine fair value.

Loans

The fair value of loans is estimated by discounting the future cash flows using current discount rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Deposit Liabilities

The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date and fair value approximates carrying value. The fair value of fixed maturity certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for certificates of deposit with similar remaining maturities.

Federal Funds Purchased and other Short-term Borrowings

The carrying amount is the estimated fair value for these borrowings that reprice frequently in the near term.

Securities Sold Under Agreements to Repurchase, Subordinated Notes Payable, and Other Long-term Borrowings

The fair value of these borrowings is estimated based on rates currently available for debt with similar terms and remaining maturities.

Commitments to Extend Credit and Standby Letters of Credit

Pricing of these financial instruments is based on the credit quality and relationship, fees, interest rates, probability of funding, compensating balance, and other covenants or requirements. Loan commitments generally have fixed expiration dates, variable interest rates and contain termination and other clauses that provide for relief from funding in the event there is a significant deterioration in the credit quality of the customer. Many loan commitments are expected to, and typically do, expire without being drawn upon. The rates and terms of the Company’s commitments to lend and standby letters of credit are competitive with others in the various markets in which the Company operates. There are no unamortized fees relating to these financial instruments, as such the carrying value and fair value are both zero.

The carrying amounts and estimated fair values of the Company’s financial instruments are as follows for the dates indicated.

December 31,	2011				2010
(In thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Assets
Cash and cash equivalents	$	94,309	$	94,309	$	182,056	$	182,056
Investment securities:
Available for sale		597,819		597,819		444,182		444,182
Held to maturity		875		974		930		844
FHLB and similar stock		9,515		N/A		9,515		N/A
Loans, net		1,043,844		1,043,824		1,164,056		1,157,606
Accrued interest receivable		6,619		6,619		7,258		7,258
Liabilities
Deposits		1,435,065		1,441,490		1,463,572		1,470,277
Federal funds purchased and other short-term borrowings		27,022		27,022		47,409		47,409
Securities sold under agreements to repurchase and other long-term borrowings		190,694		212,176		203,239		219,709
Subordinated notes payable to unconsolidated trusts		48,970		20,982		48,970		27,234
Accrued interest payable		2,375		2,375		2,811		2,811