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FAIR VALUES OF FINANCIAL INSTRUMENTS: | 12 Months Ended
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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 | )

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13433-108611 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13504-108611 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15A -Subparagraph a-d -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13537-108611 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44A, 44B -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19207-110258 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 3, 10, 14, 15 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15B -Subparagraph a, b -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32, 33, 34 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. + Details
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