Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures [Abstract]

Fair Value Measurements

FAIR VALUE MEASUREMENTS

Below is a description of certain assets and liabilities measured at fair value.

The following table summarizes financial instruments measured at fair value on a recurring basis as of September 30, 2012, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.

	September 30, 2012
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Assets
Securities available for sale
Obligations of U.S. Government sponsored enterprises	$	—	$	128,005	$	—	$	128,005
Obligations of states and political subdivisions	—		42,742		3,047		45,789
Residential mortgage-backed securities	—		436,563		—		436,563
Total securities available for sale	$	—	$	607,310	$	3,047	$	610,357
Portfolio loans	—		12,891		—		12,891
State tax credits held for sale	—		—		25,069		25,069
Derivative financial instruments	—		3,421		—		3,421
Total assets	$	—	$	623,622	$	28,116	$	651,738
Liabilities
Derivative financial instruments	$	—	$	3,768	$	—	$	3,768
Total liabilities	$	—	$	3,768	$	—	$	3,768

• Securities available for sale. Securities classified as available for sale are reported at fair value utilizing Level 2 and Level 3 inputs. The Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions. At September 30, 2012, Level 3 securities available for sale consist primarily of three Auction Rate Securities.

• Portfolio Loans. Certain fixed rate portfolio loans are accounted for as trading instruments and reported at fair value. Fair value on these loans is determined using a third party valuation model with observable Level 2 market data inputs.

• State tax credits held for sale. At September 30, 2012, of the $65.9 million of state tax credits held for sale on the condensed consolidated balance sheet, approximately $25.1 million were carried at fair value. The remaining $40.8 million of state tax credits were accounted for at cost.

The fair value of the state tax credits carried at fair value increased $257,000 for the quarter ended September 30, 2012 compared to $975,000 for the same period in 2011. These fair value changes are included in Gain on state tax credits, net in the condensed consolidated statements of operations.

The Company is not aware of an active market that exists for the 10-year streams of state tax credit financial instruments. However, the Company’s principal market for these tax credits consists of Missouri state residents who buy these credits and from local and regional accounting firms who broker them. As such, the Company employed a discounted cash flow analysis (income approach) to determine the fair value.

The fair value measurement is calculated using an internal valuation model with observable market data including discounted cash flows based upon the terms and conditions of the tax credits. Assuming that theunderlying project remains in compliance with the various federal and state rules governing the tax credit program, each project will generate about 10 years of tax credits. The inputs to the fair value calculation include: the amount of tax credits generated each year, the anticipated sale price of the tax credit, the timing of the sale and a discount rate. The discount rate is defined as the LIBOR swap curve at a point equal to the remaining life in years of credits plus a 205 basis point spread. With the exception of the discount rate, the other inputs to the fair value calculation are observable and readily available. The discount rate is considered a Level 3 input because it is an “unobservable input” and is based on the Company’s assumptions. An increase in the discount rate utilized would generally result in a lower estimated fair value of the tax credits. Alternatively, a decrease in the discount rate utilized would generally result in a higher estimated fair value of the tax credits. Given the significance of this input to the fair value calculation, the state tax credit assets are reported as Level 3 assets.

• Derivatives. Derivatives are reported at fair value utilizing Level 2 inputs. The Company obtains counterparty quotations to value its interest rate swaps and caps. In addition, the Company validates the counterparty quotations with third party valuation sources. Derivatives with negative fair values are included in Other liabilities in the consolidated balance sheets. Derivatives with positive fair value are included in Other assets in the consolidated balance sheets.

Level 3 financial instruments

The following table presents the changes in Level 3 financial instruments measured at fair value on a recurring basis as of September 30, 2012.

• Purchases, sales, issuances and settlements, net. There were no Level 3 purchases during the quarter ended September 30, 2012.

• Transfers in and/or out of Level 3. The transfer out of Level 3 is related to a newly issued mortgage-backed security purchased in the fourth quarter of 2011 which was originally priced using Level 3 assumptions. In the first quarter of 2012, a third party pricing service, utilizing Level 2 assumptions, became available as more data was available on the new security.

	Securities available for sale, at fair value
	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2012		2011		2012			2011
Beginning balance	$	3,042	$	2,994	$	6,763		$	7,520
Total gains (losses):
Included in other comprehensive income	5		5		20			34
Purchases, sales, issuances and settlements:
Purchases	—		4,983		—			4,983
Transfer in and/or out of Level 3	—		—		(3,736		)	(4,555		)
Ending balance	$	3,047	$	7,982	$	3,047		$	7,982
Change in unrealized gains relating to assets still held at the reporting date	$	5	$	5	$	20		$	34

	State tax credits held for sale
	Three months ended September 30,						Nine months ended September 30,
(in thousands)	2012			2011			2012			2011
Beginning balance	$	24,836		$	29,247		$	26,350		$	31,576
Total gains:
Included in earnings	264			1,211			994			2,020
Purchases, sales, issuances and settlements:
Sales	(31		)	(964		)	(2,275		)	(4,102		)
Ending balance	$	25,069		$	29,494		$	25,069		$	29,494
Change in unrealized gains relating to assets still held at the reporting date	$	257		$	975		$	439		$	1,009

From time to time, the Company measures certain assets at fair value on a nonrecurring basis. These include assets that are measured at the lower of cost or fair value that were recognized at fair value below cost at the end of the period. The following table presents financial instruments and non-financial assets measured at fair value on a non-recurring basis as of September 30, 2012.

	(1)		(1)		(1)		(1)
(in thousands)	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total (losses) gains for the three months ended September 30, 2012			Total (losses) gains for the nine months ended September 30, 2012
Impaired loans	$	7,905	$	—	$	—	$	7,905	$	(3,974	)	$	(8,679	)
Other real estate	8,454		—		—		8,454		(387		)	(2,201		)
Total	$	16,359	$	—	$	—	$	16,359	$	(4,361	)	$	(10,880	)

(1) The amounts represent only balances measured at fair value during the period and still held as of the reporting date.

Impaired loans are reported at the fair value of the underlying collateral. Fair values for impaired loans are obtained from current appraisals by qualified licensed appraisers or independent valuation specialists. Other real estate owned is adjusted to fair value upon foreclosure of the underlying loan. Subsequently, foreclosed assets are carried at the lower of carrying value or fair value less costs to sell. Fair value of other real estate is based upon the current appraised values of the properties as determined by qualified licensed appraisers and the Company’s judgment of other relevant market conditions. Certain state tax credits are reported at cost.

Following is a summary of the carrying amounts and fair values of the Company’s financial instruments on the consolidated balance sheets at September 30, 2012, and December 31, 2011.

	September 30, 2012				December 31, 2011
(in thousands)	Carrying Amount		Estimated fair value		Carrying Amount		Estimated fair value
Balance sheet assets
Cash and due from banks	$	28,964	$	28,964	$	20,791	$	20,791
Federal funds sold	30		30		143		143
Interest-bearing deposits	57,681		57,681		168,711		168,711
Securities available for sale	610,357		610,357		593,182		593,182
Other investments, at cost	16,362		16,362		14,527		14,527
Loans held for sale	8,245		8,245		6,494		6,494
Derivative financial instruments	3,421		3,421		1,189		1,189
Portfolio loans, net	2,163,275		2,169,718		2,158,060		2,163,723
State tax credits, held for sale	65,873		71,482		50,446		50,446
Accrued interest receivable	10,481		10,481		9,193		9,193
Balance sheet liabilities
Deposits	2,550,933		2,562,601		2,791,353		2,804,044
Subordinated debentures	85,081		41,919		85,081		42,252
Federal Home Loan Bank advances	126,000		135,388		102,000		110,575
Other borrowings	147,104		147,111		154,545		154,561
Derivative financial instruments	3,768		3,768		1,796		1,796
Accrued interest payable	1,377		1,377		1,762		1,762

For information regarding the methods and assumptions used to estimate the fair value of each class of financial instruments for which it is practical to estimate such value, refer to Note 19–Fair Value Measurements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

The following table presents the level in the fair value hierarchy for the estimated fair values of only the Company’s financial instruments that are not already on the condensed consolidated balance sheets at fair value at September 30, 2012, and December 31, 2011.

	Estimated Fair Value Measurement at Reporting Date Using						Balance at September 30, 2012
(in thousands)	Level 1		Level 2		Level 3
Financial Assets:
Portfolio loans, net	$	—	$	—	$	2,169,421	$	2,169,421
State tax credits, held for sale	$	—	$	—	$	46,413	$	46,413
Financial Liabilities:
Deposits	1,937,740		—		624,861		2,562,601
Subordinated debentures	—		—		41,919		41,919
Federal Home Loan Bank advances	—		—		135,388		135,388
Other borrowings	—		—		147,111		147,111
	Estimated Fair Value Measurement at Reporting Date Using						Balance at December 31, 2011
(in thousands)	Level 1		Level 2		Level 3
Financial Assets:
Portfolio loans, net	$	—	$	—	$	2,163,121	$	2,163,121
State tax credits, held for sale	$	—	$	—	$	24,096	$	24,096
Financial Liabilities:
Deposits	1,974,432		—		829,612		2,804,044
Subordinated debentures	—		—		42,252		42,252
Federal Home Loan Bank advances	—		—		110,575		110,575
Other borrowings	—		—		154,561		154,561