page 6 The Company assesses impairment for pooled trust preferred securities using a cash flow model. The key assumptions  include default probabilities of the underlying collateral and recoveries on collateral defaults. These assumptions may have a  significant effect on the determination of the present value of expected future cash flows and the resulting amount of other- than-temporary impairment. As such, the use of different models and assumptions, as well as changes in market conditions,  could result in materially different net earnings and retained earnings results.  GAAP requires management to value and present at fair value certain of the Company’s assets and liabilities, including  investments classified as available-for-sale and derivatives. FASB ASC 820,  Fair Value Measurements and Disclosures , which defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosures about fair  value measurements. For more information regarding fair value measurements and disclosures, please refer to Note 17, Fair  Value Disclosures, of the consolidated financial statements that accompany this report.  Fair values are based on market prices when available. However, some of the Company’s transactions lack an available  trading market characterized by frequent transactions between a willing buyer and seller. In these cases, such values are  estimated using pricing models that use discounted cash flows and other pricing techniques. Pricing models and their  underlying assumptions are based upon management’s best estimates for appropriate discount rates, default rates,  prepayments, market volatility and other factors, taking into account current observable market data and experience.  These assumptions may have a significant effect on the reported fair values of assets and liabilities and the related  income and expense. As such, the use of different models and assumptions, as well as changes in market conditions, could  result in materially different net earnings and retained earnings results.  OREO consists of properties obtained through foreclosure or in satisfaction of loans, is reported at the lower of cost or  fair value, less estimated costs to sell at the date acquired with any loss recognized as a charge-off through the allowance for  loan losses. Additional OREO losses for subsequent valuation adjustments are determined on a specific property basis and  are included as a component of other noninterest expense along with holding costs. Any gains or losses on disposal realized  at the time of disposal are also reflected in noninterest expense. Significant judgments and complex estimates are required in  estimating the fair value of OREO, and the period of time within which such estimates can be considered current is  significantly shortened during periods of market volatility, as experienced during 2011 and 2010. As a result, the net  proceeds realized from sales transactions could differ significantly from appraisals, comparable sales, and other estimates  used to determine the fair value of OREO. A valuation allowance is recognized for a deferred tax asset if, based on the weight of available evidence, it is more- likely-than-not that some portion or the entire deferred tax asset will not be realized. The ultimate realization of deferred tax  assets is dependent upon the generation of future taxable income during the periods in which those temporary differences  become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income  and tax planning strategies in making this assessment. Based upon the level of taxable income over the last three years and  projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the we will realize the benefits of these deductible differences at December 31, 2011. The amount  of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable  income during the future periods are reduced. Deferred Tax Asset Valuation Other Real Estate Owned  Fair Value Determination 