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Fair Value
9 Months Ended
Sep. 30, 2011
Fair Value [Abstract] 
Fair Value
(6)   Fair Value
 
The Company is required to disclose fair value information about financial instruments, whether or not recognized on the face of the balance sheet, for which it is practicable to estimate that value. The assumptions used in the estimation of the fair value of the Company's financial instruments are detailed below. Where quoted prices are not available, fair values are based on estimates using discounted cash flows and other valuation techniques. The use of discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The following disclosures should not be considered a surrogate of the liquidation value of the Company, but rather a good faith estimate of the increase or decrease in value of financial instruments held by the Company since purchase, origination, or issuance.

Cash and Cash Equivalents
For cash, due from banks and interest bearing deposits, the carrying amount is a reasonable estimate of fair value.

Certificates of Deposit
The carrying amount of certificates of deposit is a reasonable estimate of fair value.

Investment Securities Available for Sale
Fair values for investment securities are based on quoted market prices.

Other Investments
For other investments, the carrying value is a reasonable estimate of fair value.

Mortgage Loans Held for Sale
Mortgage loans held for sale are carried at lower of aggregate cost or market value.  The cost of mortgage loans held for sale approximates the market value.

Loans
The fair value of fixed rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings. For variable rate loans, the carrying amount is a reasonable estimate of fair value.
 
Cash Surrender Value of Life Insurance
For cash surrender value of life insurance, the carrying value is a reasonable estimate of fair value.

Derivative Instruments
For derivative instruments, fair value is estimated as the amount that the Company would receive or pay to terminate the contracts at the reporting date, taking into account the current unrealized gains or losses on open contracts.
 
Deposits and Demand Notes Payable to U.S. Treasury
The fair value of demand deposits, interest-bearing demand deposits, savings, and demand notes payable to the U.S. Treasury is the amount payable on demand at the reporting date. The fair value of certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities.

Securities Sold Under Agreements to Repurchase
For securities sold under agreements to repurchase, the carrying value is a reasonable estimate of fair value.

Federal Home Loan Bank (“FHLB”) Borrowings
The fair value of FHLB borrowings is estimated based upon discounted future cash flows using a discount rate comparable to the current market rate for such borrowings.

Junior Subordinated Debentures
Because the Company's junior subordinated debentures were issued at a floating rate, the carrying amount is a reasonable estimate of fair value.

Commitments to Extend Credit and Standby Letters of Credit
Commitments to extend credit and standby letters of credit are generally short-term and at variable interest rates. Therefore, both the carrying value and estimated fair value associated with these instruments are immaterial.

Limitations
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 market exists for a significant portion of the Company's financial instruments, fair value estimates are based on many judgments. 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 instruments include the deferred income taxes and premises and equipment. In addition, the 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 the estimates.

GAAP establishes a framework for measuring fair value and expands disclosures about fair value measurements. There is a three-level fair value hierarchy for fair value measurements.  Level 1 inputs are quoted prices in active markets for identical assets or liabilities that a company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability.   The following tables present the balance of securities available for sale, mortgage loans held for sale and derivatives, which are measured at fair value on a recurring basis by level within the fair value hierarchy as of September 30, 2011 and December 31, 2010.

(Dollars in thousands)
       
 
Fair Value
Measurements
September 30, 2011
 
Level 1
Valuation
 
Level 2
Valuation
 
Level 3
Valuation
Mortgage-backed securities
$200,827 - 200,827 -
U.S. government
        
sponsored enterprises
$25,601 - 25,601 -
State and political subdivisions
$97,155 - 97,155 -
Trust preferred securities
$1,250 - - 1,250
Equity securities
$897 897 - -
Mortgage loans held for sale
$2,148 - 2,148 -
 
(Dollars in thousands)
       
 
Fair Value
Measurements
December 31, 2010
 
Level 1
Valuation
 
Level 2
Valuation
 
Level 3
Valuation
Mortgage-backed securities
$139,361 - 139,361 -
U.S. government
        
sponsored enterprises
$42,640 - 42,640 -
State and political subdivisions
$87,829 - 87,829 -
Trust preferred securities
$1,250 - - 1,250
Equity securities
$1,369 1,369 - -
Mortgage loans held for sale
$3,814 - 3,814 -
Market value of derivatives (in other assets)
$648 - 648 -
 
The following is an analysis of fair value measurements of investment securities available for sale using Level 3, significant unobservable inputs, for the nine months ended September 30, 2011:
 
(Dollars in thousands)
 
 
Investment Securities Available for Sale
 
Level 3 Valuation
Balance, beginning of period
$1,250
Change in book value
 -
Change in gain/(loss) realized and unrealized
 -
Purchases/(sales)
 -
Transfers in and/or out of Level 3
 -
Balance, end of period
$1,250
    
Change in unrealized gain/(loss) for assets still held in Level 3
$-
 
The Company's September 30, 2011 and December 31, 2010 fair value measurement for impaired loans and other real estate on a non-recurring basis is presented below:
 
(Dollars in thousands)
        
 
Fair Value
Measurements
September 30, 2011
 
Level 1
Valuation
 
Level 2
Valuation
 
Level 3
Valuation
 
Total Gains/(Losses) for
the Nine Months Ended
September 30, 2011
Impaired loans
$27,491 - 19,040 8,451 (9,696)
Other real estate
$5,985 - 5,985 - (1,026)
            
(Dollars in thousands)
        
 
Fair Value
Measurements
December 31, 2010
 
Level 1
Valuation
 
Level 2
Valuation
 
Level 3
Valuation
 
Total Gains/(Losses) for
the Year Ended December
31, 2010
Impaired loans
$40,062 - 26,798 13,264 (10,591)
Other Real Estate
$6,673 - 6,673 - (340)
 
The carrying amount and estimated fair value of the Company's financial instruments at September 30, 2011 and December 31, 2010 are as follows:

(Dollars in thousands)
       
 
September 30, 2011
 
December 31, 2010
 
Carrying Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
Assets:
       
Cash and cash equivalents
$44,873 44,873 23,977 23,977
Certificates of deposit
 - - 735 735
Investment securities available for sale
 325,730 325,730 272,449 272,449
Other investments
 5,779 5,779 5,761 5,761
Mortgage loans held for sale
 2,148 2,148 3,814 3,814
Loans, net
 661,317 657,056 710,667 710,880
Cash surrender value of life insurance
 12,721 12,721 7,539 7,539
Derivative instruments
 - - 648 648
          
Liabilities:
        
Deposits and demand notes payable
$841,041 843,207 840,312 839,379
Securities sold under agreements
        
to repurchase
 47,701 47,701 34,094 34,094
FHLB borrowings
 70,000 79,579 70,000 79,950
Junior subordinated debentures
 20,619 20,619 20,619 20,619