FAIR VALUES OF FINANCIAL INSTRUMENTS:

12 Months Ended

Dec. 31, 2011

FAIR VALUES OF FINANCIAL INSTRUMENTS:

FAIR VALUES OF FINANCIAL INSTRUMENTS:

2.    FAIR VALUES OF FINANCIAL INSTRUMENTS:

Accounting guidance 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. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) of identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as 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 an asset or liability.

The fair value of securities available-for-sale is determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

For those securities that cannot be priced using quoted market prices or observable inputs, a Level 3 valuation is determined. These securities are primarily trust preferred securities, state and municipal obligations and certain equity securities, which are priced using Level 3 due to current market illiquidity. The fair value of trust preferred securities is computed based upon discounted cash flows estimated using payment, default and recovery assumptions. Cash flows are discounted at appropriate market rates, including consideration of credit spreads and illiquidity discounts. The fair value of equity securities is derived through consideration of trading activity, if any, review of financial statements, industry trends and the valuation of comparative issuers. Due to current market conditions, as well as the limited trading activity of these securities, the market value of the securities is highly sensitive to assumption changes and market volatility. The fair value of state and municipal obligations are derived by comparing the securities to current market rates plus an appropriate credit spread to determine an estimated value. Illiquidity spreads are then considered. An actual credit review is performed on each of the issuers.

The fair value of derivatives is based on valuation models using observable market data as of the measurement date (Level 2 inputs).

	December 31, 2011
	Fair Value Measurment Using
(Dollar amounts in thousands)	Level 1		Level 2			Level 3		Carrying Value
U.S. Government entity mortgage-backed securities	$	—	$	4,013		$	—	$	4,013
Mortgage-backed securities, residential	—		311,788			—		311,788
Mortgage-backed securities, commercial	—		101			—		101
Collateralized mortgage obligations	—		147,947			—		147,947
State and municipal obligations	—		186,056			9,525		195,581
Collateralized debt obligations	—		—			4,771		4,771
Equity Securities	375		—			1,711		2,086
TOTAL	$	375	$	649,905		$	16,007	$	666,287
Derivative Assets			$	2,447
Derivative Liabilities			(2,447		)

	December 31, 2010
	Fair Value Measurment Using
(Dollar amounts in thousands)	Level 1		Level 2			Level 3		Carrying Value
U.S. Government entity mortgage-backed securities	$	—	$	2,073		$	—	$	2,073
Mortgage-backed securities, residential	—		302,423			—		302,423
Mortgage-backed securities, commercial	—		139			—		139
Collateralized mortgage obligations	—		94,457			—		94,457
State and municipal obligations	—		157,540			—		157,540
Collateralized debt obligations	—		—			2,190		2,190
Equity Securities	506		—			1,518		2,024
TOTAL	$	506	$	556,632		$	3,708	$	560,846
Derivative Assets			$	1,311
Derivative Liabilities			(1,311		)

The table below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the twelve months ended December 31, 2011 and 2010.

Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)

December 31, 2011

			State and			Collateralized
			municipal			debt
	Equities		obligations			obligations		Total
Beginning balance, January 1	$	1,518	$	—		$	2,190	$	3,708
Total realized/unrealized gains or losses
Included in earnings	—		—			—		—
Included in other comprehensive income	193		—			2,581		2,774
Transfers & Purchases	—		9,672			—		9,672
Settlements	—		(147		)	—		(147		)
Ending balance, December 31	$	1,711	$	9,525		$	4,771	$	16,007

Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)

December 31, 2010

				Collateralized
				debt
	Equities			obligations			Total
Beginning balance, January 1	$	3,361		$	1,416		$	4,777
Total realized/unrealized gains or losses
Included in earnings	(1,162		)	(3,098		)	(4,260		)
Included in other comprehensive income	—			3,872			3,872
Transfers & Purchases	—						—
Settlements	(681		)	—			(681		)
Ending balance, December 31	$	1,518		$	2,190		$	3,708

There were no unrealized gains and losses recorded in earnings for the year ended December 31, 2011. Change in unrealized gains and losses recorded in earnings for the year ended December 31, 2010 for Level 3 assets that are still held at December 31, 2010 was related to fair value declines recorded as other-than- temporary impairment.

The fair value for certain local municipal securities with a fair value of $9.7 million as of December 31, 2011 was transferred out of Level 2 into Level 3 because of a lack of observable market data for these investments due to a decrease in the market activity for this security. Impaired loans disclosed in footnote 7, which are measured for impairment using the fair value of collateral, are valued at Level 3. They are carried at a fair value of $28.4 million, after a valuation allowance of $4.3 million at December 31, 2011 and at a fair value of $31.6 million, net of a valuation allowance of $5.9 million at December 31, 2010. The impact to the provision for loan losses for the twelve months ended December 31, 2011 and December 31, 2010 was $3.3 million and $750 thousand, respectively. Fair value is measured based on the value of the collateral securing those loans and is determined using several methods. Generally, the fair value of real estate is determined based on appraisals by qualified licensed appraisers. If an appraisal is not available, the fair value may be determined by using a cash flow analysis, a broker’s opinion of value, the net present value of future cash flows, or an observable market price from an active market. Fair value on non-real estate loans is determined using similar methods. Other real estate owned is valued based on the methods described above and is valued at Level 3. Other real estate owned at December 31, 2011 with a value of $5.0 million was reduced $892 thousand for fair value adjustment. At December 31, 2011 other real estate owned was comprised of $2.8 million from commercial loans and $2.2 million from residential loans. Other real estate owned at December 31, 2010 with a value of $6.3 million was reduced $353 thousand for fair value adjustment. At December 31, 2010 other real estate owned was comprised of $3.3 million from commercial loans and $3.0 million from residential loans.

The following table presents loans identified as impaired by class of loans as of December 31, 2011and 2010.

	December 31, 2011
(Dollar amounts in thousands)	Unpaid Principal Balance		Allowance for Loan Losses Allocated		Fair Value
Commercial
Commercial & Industrial	$	17,890	$	2,664	$	15,226
Farmland	891		49		842
Non Farm, Non Residential	9,260		957		8,303
Agriculture	—		—		—
All Other Commercial	1,517		66		1,451
Residential
First Liens	1,963		190		1,773
Home Equity	—		—		—
Junior Liens	879		347		532
Multifamily	250		—		250
All Other Residential	—		—		—
Consumer
Motor Vehicle	—		—		—
All Other Consumer	—		—		—
TOTAL	$	32,650	$	4,273	$	28,377

	December 31, 2010
(Dollar amounts in thousands)	Unpaid Principal Balance		Allowance for Loan Losses Allocated		Fair Value
Commercial
Commercial & Industrial	$	19,868	$	1,508	$	18,360
Farmland	—				—
Non Farm, Non Residential	12,397		3,255		9,142
Agriculture	—
All Other Commercial	1,577		128		1,449
Residential
First Liens	1,910		533		1,377
Home Equity	—				—
Junior Liens	1,129		443		686
Multifamily	638				638
All Other Residential	—				—
Consumer
Motor Vehicle	—				—
All Other Consumer	—				—
TOTAL	$	37,519	$	5,867	$	31,652

The carrying amounts and estimated fair values of financial instruments are shown below. Carrying amount is the estimated fair value for cash and due from banks, federal funds sold, accrued interest receivable and payable, demand deposits, short-term and certain other borrowings, and variable-rate loans or deposits that reprice frequently and fully. Security fair values are determined as previously described. It is not practicable to determine the fair value of restricted stock due to restrictions placed on their transferability. For the FDIC indemnification asset the carrying value is the estimated fair value as it represents amounts to be received from the FDIC in the near term. For fixed-rate loans or deposits, variable rate loans or deposits with infrequent repricing or repricing limits, and for longer-term borrowings, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values. Fair value of debt is based on current rates for similar financing. The fair value of off-balance sheet items is not considered material.

The carrying amount and estimated fair value of assets and liabilities are presented in the table below and were determined based on the above assumptions:

	December 31,
	2011						2010
	Carrying			Fair			Carrying			Fair
(Dollar amounts in thousands)	Value			Value			Value			Value
Cash and due from banks	$	134,280		$	134,280		$	58,511		$	58,511
Federal funds sold	11,725			11,725			5,104			5,104
Securities available-for-sale	666,287			666,287			560,846			560,846
Restricted stock	22,282			N/A			25,308			N/A
Loans, net	1,874,438			1,888,263			1,617,810			1,607,895
FDIC Indemnification Asset	2,384			2,384			3,977			3,977
Accrued interest receivable	12,947			12,947			11,208			11,208
Deposits	(2,274,499		)	(2,279,739		)	(1,903,043		)	(1,909,874		)
Short-term borrowings	(100,022		)	(100,022		)	(34,106		)	(34,106		)
Federal Home Loan Bank advances	(140,231		)	(144,089		)	(125,793		)	(128,881		)
Other borrowings	(6,196		)	(6,196		)	—			—
Accrued interest payable	(1,829		)	(1,829		)	(2,041		)	(2,041		)