| 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 March 31, 2013, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value. | | | | | | | | | | | | | | | | | | March 31, 2013 | (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 | $ | — |
| | $ | 133,547 |
| | $ | — |
| | $ | 133,547 |
| Obligations of states and political subdivisions | — |
| | 48,856 |
| | 3,051 |
| | 51,907 |
| Residential mortgage-backed securities | — |
| | 297,553 |
| | — |
| | 297,553 |
| Total securities available for sale | $ | — |
| | $ | 479,956 |
| | $ | 3,051 |
| | $ | 483,007 |
| Portfolio loans | — |
| | 9,794 |
| | — |
| | 9,794 |
| State tax credits held for sale | — |
| | — |
| | 20,053 |
| | 20,053 |
| Derivative financial instruments | — |
| | 1,622 |
| | — |
| | 1,622 |
| Total assets | $ | — |
| | $ | 491,372 |
| | $ | 23,104 |
| | $ | 514,476 |
| | | | | | | | | Liabilities | |
| | | | |
| | | Derivative financial instruments | $ | — |
| | $ | 1,721 |
| | $ | — |
| | $ | 1,721 |
| Total liabilities | $ | — |
| | $ | 1,721 |
| | $ | — |
| | $ | 1,721 |
|
| | • | 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. Fair values for Level 2 securities are based upon dealer quotes, market spreads, the U.S. Treasury yield curve, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions at the security level. At March 31, 2013, Level 3 securities available for sale consist primarily of three Auction Rate Securities that are valued based on the securities' estimated cash flows, yields of comparable securities, and live trading levels. |
| | • | 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 March 31, 2013, of the $55.9 million of state tax credits held for sale on the condensed consolidated balance sheet, approximately $20.0 million were carried at fair value. The remaining $35.9 million of state tax credits were accounted for at cost. |
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. If the underlying 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 discounted cash flow 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 estimated using 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 for the periods ended March 31, 2013 and 2012, respectively. | | • | Purchases, sales, issuances and settlements, net. There were no Level 3 purchases during the quarter ended March 31, 2013 or 2012. |
| | • | Transfers in and/or out of Level 3. The transfer out of Level 3 during the period ended March 31, 2012 was related to a 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 March 31, | (in thousands) | 2013 | | 2012 | Beginning balance | $ | 3,049 |
| | $ | 6,763 |
| Total gains (losses): | | | | Included in other comprehensive income | 2 |
| | (3 | ) | Purchases, sales, issuances and settlements: | | | | Purchases | — |
| | — |
| Transfer in and/or out of Level 3 | — |
| | (3,736 | ) | Ending balance | $ | 3,051 |
| | $ | 3,024 |
| | | | | Change in unrealized gains relating to
assets still held at the reporting date | $ | 2 |
| | $ | (3 | ) |
| | | | | | | | | | State tax credits held for sale | Three months ended March 31, | (in thousands) | 2013 | | 2012 | Beginning balance | $ | 23,020 |
| | $ | 26,350 |
| Total gains: | | | | Included in earnings | 156 |
| | 171 |
| Purchases, sales, issuances and settlements: | | | | Sales | (3,123 | ) | | (1,868 | ) | Ending balance | $ | 20,053 |
| | $ | 24,653 |
| | | | | Change in unrealized gains relating to
assets still held at the reporting date | $ | (674 | ) | | $ | (283 | ) |
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 March 31, 2013: | | | | | | | | | | | | | | | | | | | | | | (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
March 31, 2013 | Impaired loans | $ | 7,654 |
| | $ | — |
| | $ | — |
| | $ | 7,654 |
| | $ | (4,780 | ) | Other real estate | 4,699 |
| | — |
| | — |
| | 4,699 |
| | (544 | ) | Total | $ | 12,353 |
| | $ | — |
| | $ | — |
| | $ | 12,353 |
| | $ | (5,324 | ) |
(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 or by determining the net present value of future cash flows. Fair values for collateral dependent impaired loans are obtained from current appraisals by qualified licensed appraisers or independent valuation specialists. Fair values of impaired loans that are not collateral dependent are determined by using a discounted cash flow model to determine the net present value of future cash flows. Other real estate owned is adjusted to fair value upon foreclosure of the loan collateral. 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.
Following is a summary of the carrying amounts and fair values of the Company’s financial instruments on the consolidated balance sheets at March 31, 2013, and December 31, 2012. | | | | | | | | | | | | | | | | | | March 31, 2013 | | December 31, 2012 | (in thousands) | Carrying Amount | | Estimated fair value | | Carrying Amount | | Estimated fair value | Balance sheet assets | | | | | | | | Cash and due from banks | $ | 39,321 |
| | $ | 39,321 |
| | $ | 21,906 |
| | $ | 21,906 |
| Federal funds sold | 32 |
| | 32 |
| | 51 |
| | 51 |
| Interest-bearing deposits | 87,398 |
| | 87,398 |
| | 95,413 |
| | 95,413 |
| Securities available for sale | 483,007 |
| | 483,007 |
| | 640,212 |
| | 640,212 |
| Other investments, at cost | 14,405 |
| | 14,405 |
| | 14,294 |
| | 14,294 |
| Loans held for sale | 5,138 |
| | 5,138 |
| | 11,792 |
| | 11,792 |
| Derivative financial instruments | 1,622 |
| | 1,622 |
| | 1,754 |
| | 1,754 |
| Portfolio loans, net | 2,222,729 |
| | 2,225,070 |
| | 2,261,280 |
| | 2,267,038 |
| State tax credits, held for sale | 55,923 |
| | 60,903 |
| | 61,284 |
| | 66,822 |
| Accrued interest receivable | 10,062 |
| | 10,062 |
| | 8,497 |
| | 8,497 |
| | | | | | | | | Balance sheet liabilities | | | | | | | | Deposits | 2,494,789 |
| | 2,502,779 |
| | 2,658,851 |
| | 2,669,113 |
| Subordinated debentures | 85,081 |
| | 65,760 |
| | 85,081 |
| | 65,840 |
| Federal Home Loan Bank advances | 80,000 |
| | 88,482 |
| | 80,000 |
| | 89,301 |
| Other borrowings | 205,379 |
| | 205,477 |
| | 245,070 |
| | 245,224 |
| Derivative financial instruments | 1,721 |
| | 1,721 |
| | 1,979 |
| | 1,979 |
| Accrued interest payable | 1,191 |
| | 1,191 |
| | 1,282 |
| | 1,282 |
|
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 20–Fair Value Measurements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.
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 March 31, 2013, and December 31, 2012: | | | | | | | | | | | | | | | | | | Estimated Fair Value Measurement at Reporting Date Using | | Balance at
March 31, 2013 | (in thousands) | Level 1 | | Level 2 | | Level 3 | | Financial Assets: | | | | | | | | Portfolio loans, net | $ | — |
| | $ | — |
| | $ | 2,224,976 |
| | $ | 2,224,976 |
| State tax credits, held for sale | $ | — |
| | $ | — |
| | $ | 40,850 |
| | $ | 40,850 |
| Financial Liabilities: | | | | | | | | Deposits | 1,963,937 |
| | — |
| | 538,842 |
| | 2,502,779 |
| Subordinated debentures | — |
| | 65,760 |
| | — |
| | 65,760 |
| Federal Home Loan Bank advances | — |
| | 88,482 |
| | — |
| | 88,482 |
| Other borrowings | — |
| | 205,477 |
| | — |
| | 205,477 |
| | | Estimated Fair Value Measurement at Reporting Date Using | | Balance at
December 31, 2012 | (in thousands) | Level 1 | | Level 2 | | Level 3 | | Financial Assets: | | | | | | | | Portfolio loans, net | $ | — |
| | $ | — |
| | $ | 2,266,834 |
| | $ | 2,266,834 |
| State tax credits, held for sale | $ | — |
| | $ | — |
| | $ | 43,802 |
| | $ | 43,802 |
| Financial Liabilities: | | | | | | | | Deposits | 2,079,141 |
| | — |
| | 589,972 |
| | 2,669,113 |
| Subordinated debentures | — |
| | 65,840 |
| | — |
| | 65,840 |
| Federal Home Loan Bank advances | — |
| | 89,301 |
| | — |
| | 89,301 |
| Other borrowings | — |
| | 245,224 |
| | — |
| | 245,224 |
|
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