Note 17 - Fair Value Measurement

(Table amounts in $ 000s)

Below shows information about the Company's securities that were measured at fair value on a recurring basis at year-end 2011 and 2010, and the valuation techniques used by the Company to determine fair values.

In general, fair values determined by Level 1 inputs use a quoted price in active markets for identical securities that the Company had the ability to access.

Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar securities in active markets, and other input such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related securities.

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest input that is significant to the valuation. The Company's assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each security.

On an annual basis the Company validates the measurement of the fair values of its securities with an independent securities valuation firm. This independent securities valuation firm determines the fair values of the securities portfolio that is then compared to the fair value using the methods outlined. When this validation was last done on September 30, 2011, the difference between the fair value reported and the fair value determined by the independent securities valuation firm was considered immaterial.

Securities Available for Sale			Fair Value Measurements at Reporting Date Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
December 31, 2011			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
States and political subdivisions	$	3,117	$	0	$	2,172	$	945
Mortgage-backed securities		79,762		0		79,762		0
Equity securities		4,261		4,261		0		0
At December 31, 2011	$	87,140	$	4,261	$	81,934	$	945

December 31, 2010

U.S Treasury	$	1,002	$	1,002	$	0	$	0
States and political subdivisions		3,997		0		3,997		0
Mortgage-backed securities		82,648		0		82,648		0
Other bonds		20		0		0		20
Equity securities		4,163		4,163		0		0
At December 31, 2010	$	91,830	$	5,165	$	86,645	$	20

The Company's change in Level 3 measured at fair value on a recurring basis were as follows:

	Securities Available for Sale
Balance at December 31, 2009	$	37
Net realized and unrealized gains (losses) included in loss		(659	)
Net realized (losses) included in other comprehensive income		642
Net purchase, sales, calls and maturities		0
Net transfers into Level 3		0

Balance at December 31, 2010		20
Net realized and unrealized gains (losses) included in loss		(163	)
Net realized (losses) included in other comprehensive income		143
Net purchase, sales, calls and maturities		0
Net transfers into Level 3		945

Balance at December 31, 2011	$	945

During 2011, the fair value of a security having a carrying value of $945,000 at year-end 2011 could no longer be determined using significant other observable inputs, or Level 2, as it consisted of a local nonrated municipal issue. At year-end 2011, fair value was determined using significant unobservable inputs, or Level 3, based on an outside investment broker's analysis of the financial condition of the municipality issuing the security.

The Company used accounting guidelines to determine other than temporary impairment losses on its Collateralized Debt Obligations ("CDOs") as the fair value of these securities was not readily determinable by the market. The impairment losses on the CDOs were due to defaults and deferral of payments by the financial institutions and insurance companies that issued the debt underlying the securities. During 2011, the Company used cash flow analyses on its CDOs to determine other than temporary impairment losses of $134,000, fully writing off the remaining book value of these securities. Subsequently in 2011, the Company sold these CDOs for $250,000 recognizing a gain on the sale of securities for that amount. During 2010, the Company used cash flow analyses on these CDOs and recognized other than temporary impairment losses of $645,000 leaving a carrying value of $20,000 for these securities at year-end 2010.

During 2011, the Company recognized other than temporary impairment losses on its equity securities consisting of preferred stock issued by the Federal National Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corporation (“FHLMC”) of $29,000, fully writing off the remaining book value of these securities. Subsequently in 2011, the Company sold these equity securities for $142,000 recognizing a gain on the sale of securities for that amount. During 2010, the Company recognized other than temporary impairment losses for these equity securities of $14,000 leaving a carrying value of $29,000 for these securities at year-end 2010.

The Company also has assets that under certain conditions are subject to measurement at fair value on a nonrecurring basis. These assets are held to maturity loans or other real estate owned that are considered impaired per accounting principles. The Company has estimated the fair value of these impaired assets using Level 3 inputs, specifically discounted cash flow projections or fair value of collateral.

During 2011, 2010 and 2009, the Company recorded adjustments to certain collateral dependent loans that were measured for impairment in accordance with accounting guidelines. Such amounts are generally based on the estimated underlying collateral values less estimated costs to sell that support the loans. In cases where the carrying values of the loans exceed the estimated fair values of the collateral less estimated costs, an impairment loss was recognized. During 2011, 2010 and 2009, the Company also recorded adjustments to certain cash flow dependent loans consisting primarily of trouble debt restructured loans that were measured for impairment in accordance with accounting guidelines. In the case of the cash flow dependent troubled debt restructured loans, impairment was determined by comparing the discounted cash flows based on the concessions with the Company's recorded investment. The Company made allocations for impaired loans totaling $6,303,000, $9,776,000 and $21,836,000 in 2011, 2010 and 2009, respectively.

Impaired Loans			Fair Value Measurements at Reporting Date Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
At December 31, 2011	$	40,744	$	0	$	0	$	40,744

At December 31, 2010	$	56,992	$	0	$	0	$	56,992

During 2011, 2010 and 2009, the Company recorded adjustments to certain properties carried as other real estate owned that were measured for impairment in accordance with accounting guidelines. Such amounts are generally based on the estimated underlying fair values of the properties less estimated costs to sell. In cases where the carrying values of the properties exceed the estimated fair values of the properties less estimated costs, an impairment loss was recognized. These adjustments recorded as write-downs of other real estate owned totaled $4,018,000, $3,791,000 and $1,722,000 in 2011, 2010 and 2009, respectively.

Impaired Other Real Estate Owned			Fair Value Measurements at Reporting Date Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
At December 31, 2011	$	18,300	$	0	$	0	$	18,300

At December 31, 2010	$	23,874	$	0	$	0	$	23,874