Fair Value Instruments Measured at Fair Value

9 Months Ended

Sep. 30, 2011

Fair Value Instruments Measured at Fair Value [Abstract]

FAIR VALUE INSTRUMENTS MEASURED AT FAIR VALUE

NOTE D — FAIR VALUE INSTRUMENTS MEASURED AT FAIR VALUE

In certain circumstances, fair value enables the Company to more accurately align its financial performance with the market value of actively traded or hedged assets and liabilities. Fair values enable a company to mitigate the non-economic earnings volatility caused from financial assets and financial liabilities being carried at different bases of accounting, as well as, to more accurately portray the active and dynamic management of a company’s balance sheet. ASC 820 provides additional guidance for estimating fair value when the volume and level of activity for an asset or liability has significantly decreased. ASC 820 also includes guidance on identifying circumstances that indicate a transaction is not orderly. Under ASC 820, fair value measurements for items measured at fair value at September 30, 2011 and 2010 included:

(Dollars in thousands)	Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2011
Available for sale securities (3)	$	611,195	$	—	$	611,195	$	—
Loans available for sale		6,897		—		6,897		—
Loans (1)		22,271		—		10,939		11,332
Other real estate owned (2)		23,702		—		1,706		21,996
September 30, 2010
Available for sale securities (3)	$	426,931	$	—	$	426,931	$	—
Loans available for sale		7,799		—		7,799		—
Loans (1)		40,374		—		8,143		32,231
Other real estate owned (2)		32,406		—		1,244		31,162
Long-lived assets held for sale (2)		1,676		—		1,676		—

(1) See Note E. Nonrecurring fair value adjustments to loans identified as impaired reflect full or partial write-downs that are based on the loan’s observable market price or current appraised value of the collateral in accordance with ASC 310.

(2) Fair value is measured on a nonrecurring basis in accordance with ASC 360.

(3) See Note I for further detail of fair value of individual investment categories.

When appraisals are used to determine fair value and the appraisals are based on a market approach, the related loan’s fair value is classified as Level 2 input. The fair value of loans based on appraisals which require significant adjustments to market-based valuation inputs or apply an income approach based on unobservable cash flows, is classified as Level 3 inputs.

Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company’s monthly and/or quarterly valuation process.

During the first nine months of 2011 and 2010 transfers into and out of level 2 fair value for available for sale securities consisted of investment purchases, sales, maturities and principal repayments.

For loans classified as level 2, transfers in totaled $5.2 million and $6.6 million for the first nine months of 2011 and 2010, respectively, consisting of loans that became impaired. For 2011 and 2010, transfers out consisted of valuation write-downs of $5.2 million and $96,000, respectively, and foreclosures migrating to other real estate owned (“OREO”) and other reductions (including principal payments) totaled $3.0 million and $2.8 million, respectively. No sales were recorded.

For OREO classified as level 2 during the first nine months of 2011 and 2010, transfers out totaled $3.6 million and $3.0 million, respectively, consisting of valuation write-downs of $106,000 and $133,000 and sales of $3.4 million and $2.8 million, respectively, and transfers in consisted of foreclosed loans totaling $3.3 million and $1.4 million, respectively.

For 2011, loans classified as level 3 transfers in totaled $2.6 million for the first nine months, consisting of loans that became impaired and an increase in value on a single impaired loan. For 2011, transfers out consisted of valuation write-downs of $1.2 million and foreclosures migrating to other real estate owned (“OREO”) and other reductions (including principal payments) totaling $25.7 million. No sales were recorded.

For OREO classified as level 3 during the first nine months of 2011, transfers out totaled $29.8 million, consisting of valuation write-downs of $1.8 million and sales of $28.1 million, and transfers in consisted of foreclosed loans totaling $28.1 million.

The following table shows the carrying value and fair value of the Company’s financial assets and financial liabilities as of September 30, 2011 and 2010:

	September 30, 2011				September 30, 2010
(Dollars in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial Assets
Cash and cash equivalents	$	116,885	$	116,885	$	201,242	$	201,242
Securities		635,770		636,214		450,431		450,651
Loans, net		1,180,147		1,211,205		1,224,899		1,260,829
Loans held for sale		6,897		6,897		7,799		7,799
Financial Liabilities
Deposit liabilities		1,661,274		1,666,399		1,637,030		1,647,365
Borrowings		156,562		162,060		112,522		117,659
Subordinated debt		53,610		37,527		53,610		17,200

The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value at September 30, 2011 and 2010:

Cash and cash equivalents: The carrying amount was used as a reasonable estimate of fair value.

Securities: The fair value of U.S. Treasury and U.S. Government agency, mutual fund and are determined based on market quotations when available or, if not available, by using quoted market prices for similar securities, pricing models or discounted cash flows analyses, using observable market data where available. The fair value of many state and municipal securities are not readily available through market sources, so fair value estimates are based on quoted market price or prices of similar instruments.

Loans: Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, mortgage, etc. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and nonperforming categories. The fair value of loans, except residential mortgages, is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risks inherent in the loan. For residential mortgage loans, fair value is estimated by discounting contractual cash flows adjusting for prepayment assumptions using discount rates based on secondary market sources. The estimated fair value is not an exit price fair value under ASC 820 when this valuation technique is used.

Loans held for sale: Fair values are based upon estimated values to be received from independent third party purchasers.

Deposit Liabilities: The fair value of demand deposits, savings accounts and money market deposits is the amount payable at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using the rates currently offered for funding of similar remaining maturities.

Borrowings: The fair value of floating rate borrowings is the amount payable on demand at the reporting date. The fair value of fixed rate borrowings is estimated using the rates currently offered for borrowings of similar remaining maturities.

Subordinated debt: The fair value of the floating rate subordinated debt is estimated using quoted market prices for similar securities using observable market data.