Fair Value

9 Months Ended

Sep. 30, 2011

Fair Value [Abstract]

Fair Value

Note 14 – Fair Value

The carrying amounts and estimated fair values of financial instruments at September 30, 2011 and December 31, 2010 are as follows:

	September 30, 2011				December 31, 2010
($ in thousands)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Cash and due from banks, noninterest-bearing	$	75,772		75,772		56,821		56,821
Due from banks, interest-bearing		167,053		167,053		154,320		154,320
Federal funds sold		659		659		861		861
Securities available for sale		159,870		159,870		181,182		181,182
Securities held to maturity		57,533		61,512		54,018		53,312
Presold mortgages in process of settlement		3,823		3,823		3,962		3,962
Loans – non-covered, net of allowance		2,024,327		1,979,700		2,044,729		2,020,109
Loans – covered, net of allowance		370,567		370,567		359,973		359,973
FDIC indemnification asset		120,950		120,612		123,719		122,351
Accrued interest receivable		11,568		11,568		13,579		13,579
Deposits		2,729,404		2,733,835		2,652,513		2,657,214
Securities sold under agreements to repurchase		60,498		60,498		54,460		54,460
Borrowings		135,759		104,612		196,870		168,508
Accrued interest payable		1,938		1,938		2,082		2,082

Fair value methods and assumptions are set forth below for the Company's financial instruments.

Cash and Due from Banks, Federal Funds Sold, Presold Mortgages in Process of Settlement, Accrued Interest Receivable, and Accrued Interest Payable - The carrying amounts approximate their fair value because of the short maturity of these financial instruments.

Available for Sale and Held to Maturity Securities - Fair values are based on quoted market prices, where available.  If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Loans – Fair values are estimated for portfolios of loans with similar financial characteristics.  Loans are segregated by type such as commercial, financial and agricultural, real estate construction, real estate mortgages and installment loans to individuals.  Each loan category is further segmented into fixed and variable interest rate terms.  The fair value for each category is determined by discounting scheduled future cash flows using current interest rates offered on loans with similar risk characteristics.  Fair values for impaired loans are estimated based on discounted cash flows or underlying collateral values, where applicable.

FDIC Indemnification Asset – Fair value is equal to the FDIC reimbursement rate of the expected losses to be incurred and reimbursed by the FDIC and then discounted over the estimated period of receipt.

Deposits and Securities Sold Under Agreements to Repurchase - The fair value of securities sold under agreements to repurchase and deposits with no stated maturity, such as non-interest-bearing demand deposits, savings, NOW, and money market accounts, is equal to the amount payable on demand as of the valuation date.  The fair value of certificates of deposit is based on the discounted value of contractual cash flows.  The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

Borrowings - The fair value of borrowings is based on the discounted value of contractual cash flows.  The discount rate is estimated using the rates currently offered by the Company's lenders for debt of similar remaining maturities.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument.  These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument.  Because no highly liquid market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.  These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.  Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.  Significant assets and liabilities that are not considered financial assets or liabilities include net premises and equipment, intangible and other assets such as foreclosed properties, deferred income taxes, prepaid expense accounts, income taxes currently payable and other various accrued expenses.  In addition, the income tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.

Relevant 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 guidance 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:  Quoted prices for similar instruments in active or non-active markets and model-derived valuations in which all significant inputs are observable in active markets.

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 following table summarizes the Company's financial instruments that were measured at fair value on a recurring and nonrecurring basis at September 30, 2011.

($ in thousands)
Description of Financial Instruments	Fair Value  at September  30, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring
Securities available for sale:
Government-sponsored enterprise securities	$	19,734		––		19,734		-
Mortgage-backed securities		115,037		––		115,037		––
Corporate bonds		12,806		––		12,806		––
Equity securities		12,293		337		11,956		––
Total available for sale securities	$	159,870		337		159,533		––
Nonrecurring
Impaired loans – covered	$	53,448		-		53,448		-
Impaired loans – non-covered		86,270		––		86,270		––
Other real estate – covered		104,785		-		104,785		-
Other real estate – non-covered		32,673		––		32,673		––

     The following table summarizes the Company's financial instruments that were measured at fair value on a recurring and nonrecurring basis at December 31, 2010.

($ in thousands)
Description of Financial Instruments	Fair Value at December 31, 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs  (Level 2)		Significant  Unobservable  Inputs (Level 3)
Recurring
Securities available for sale:
Government-sponsored enterprise securities	$	43,273		-		43,273		-
Mortgage-backed securities		107,460		-		107,460		-
Corporate bonds		15,330		-		15,330		-
Equity securities		15,119		360		14,759		-
Total available for sale securities	$	181,182		360		180,822		-
Nonrecurring
Impaired loans – covered	$	72,825		-		72,825		-
Impaired loans – non-covered		96,003		-		96,003		-
Other real estate – covered		94,891		-		94,891		-
Other real estate – non-covered		21,081		-		21,081		-

     The following is a description of the valuation methodologies used for instruments measured at fair value.

Securities - When quoted market prices are available in an active market, the securities are classified as Level 1 in the valuation hierarchy.  Level 1 securities for the Company include certain equity securities.  If quoted market prices are not available, but fair values can be estimated by observing quoted prices of securities with similar characteristics, the securities are classified as Level 2 on the valuation hierarchy.  For the Company, Level 2 securities include mortgage backed securities, collateralized mortgage obligations, government sponsored enterprise securities, and corporate bonds.   In cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

 Impaired loans -Fair values for impaired loans in the above table are collateral dependent and are estimated based on underlying collateral values, which are then adjusted for the cost related to liquidation of the collateral.

Other real estate – Other real estate, consisting of properties obtained through foreclosure or in satisfaction of loans, is reported at the lower of cost or fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs.  At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for loan losses.

There were no transfers to or from Level 1 and 2 during the three or nine months ended September 30, 2011 or 2010.

For the nine months ended September 30, 2011, the increase in the fair value of securities available for sale was $1,646,000 which is included in other comprehensive income (net of tax expense of $642,000).  Fair value measurement methods at September 30, 2011 are consistent with those used in prior reporting periods.