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, 2018 and December 31, 2017, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:



	September 30, 2018
(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	$	—	$	97,681	$	—	$	97,681
Obligations of states and political subdivisions	—		30,533		—		30,533
Residential mortgage-backed securities	—		532,347		—		532,347
U.S. Treasury bills	—		9,767		—		9,767
Total securities available for sale	$	—	$	670,328	$	—	$	670,328
Other investments	144		—		—		144
State tax credits held for sale	—		—		171		171
Derivative financial instruments	—		4,895		—		4,895
Total assets	$	144	$	675,223	$	171	$	675,538

Liabilities
Derivative financial instruments	$	—	$	4,895	$	—	$	4,895
Total liabilities	$	—	$	4,895	$	—	$	4,895



	December 31, 2017
(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	$	—	$	99,224	$	—	$	99,224
Obligations of states and political subdivisions	—		34,642		—		34,642
Residential mortgage-backed securities	—		507,516		—		507,516
Total securities available for sale	$	—	$	641,382	$	—	$	641,382
State tax credits held for sale	—		—		400		400
Derivative financial instruments	—		3,589		—		3,589
Total assets	$	—	$	644,971	$	400	$	645,371

Liabilities
Derivative financial instruments	$	—	$	3,589	$	—	$	3,589
Total liabilities	$	—	$	3,589	$	—	$	3,589


•	Securities available for sale. Securities classified as available for sale are reported at fair value utilizing Level 2 and Level 3 inputs. 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.


•	Other investments. At September 30, 2018, of the $37.9 million of other investments on the condensed consolidated balance sheet, approximately $0.2 million were carried at fair value. The remaining $37.7 million of other investments were accounted for at cost. Other investments reported at fair value represent equity securities with quoted market prices (Level 1).


•	State tax credits held for sale. At September 30, 2018, of the $45.6 million of state tax credits held for sale on the condensed consolidated balance sheet, approximately $0.1 million were carried at fair value. The remaining $45.5 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 local and regional accounting firms who broker them. As such, the Company employed a discounted cash flow analysis (income approach) to determine fair value.

The remaining state tax credits carried at fair value are expected to be sold within the next several quarters. 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. 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.

There were no transfers between Level 1 and Level 2 during the three and nine months ended September 30, 2018 and 2017.

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, 2018 and 2017.



	Securities available for sale, at fair value
	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2018		2017		2018		2017
Beginning balance	$	—	$	—	$	—	$	3,089
Total gains:
Included in other comprehensive income	—		—		—		4
Purchases, sales, issuances and settlements:
Purchases	—		—		—		—
Transfer in and/or out of Level 3	—		—		—		(3,093		)
Ending balance	$	—	$	—	$	—	$	—

Change in unrealized gains relating to assets still held at the reporting date	$	—	$	—	$	—	$	—



	State tax credits held for sale
	Three months ended September 30,					Nine months ended September 30,
(in thousands)	2018			2017		2018			2017
Beginning balance	$	299		$	1,274	$	400		$	3,585
Total gains:
Included in earnings	7			—		13			49
Purchases, sales, issuances and settlements:
Sales	(135		)	—		(242		)	(2,360		)
Ending balance	$	171		$	1,274	$	171		$	1,274

Change in unrealized gains (losses) relating to assets still held at the reporting date	$	(34	)	$	—	$	(60	)	$	(655	)

From time to time, the Company measures certain assets at fair value on a nonrecurring basis. These include assets 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, 2018.



	(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 for the three months ended September 30, 2018		Total losses for the nine months ended September 30, 2018
Impaired loans	$	485	$	—	$	—	$	485	$	248	$	457
Other real estate	—		—		—		—		—		—
Total	$	485	$	—	$	—	$	485	$	248	$	457

(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 for collateral dependent loans. Fair values for impaired loans are obtained from current appraisals by qualified licensed appraisers or independent valuation specialists. At September 30, 2018, impaired loans measured on a non-recurring basis had a principal balance of $0.7 million, with a valuation allowance of $0.2 million.

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.

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, 2018 and December 31, 2017. Fair values that are not estimable are listed at the carrying value.



	September 30, 2018				December 31, 2017
(in thousands)	Carrying Amount		Estimated fair value		Carrying Amount		Estimated fair value
Balance sheet assets
Cash and due from banks	$	78,119	$	78,119	$	91,084	$	91,084
Federal funds sold	1,571		1,571		1,223		1,223
Interest-bearing deposits	79,780		79,780		63,661		63,661
Securities available for sale	670,328		670,328		641,382		641,382
Securities held to maturity	67,131		64,416		73,749		73,458
Other investments, at cost	37,885		37,885		26,661		26,661
Loans held for sale	738		738		3,155		3,155
Derivative financial instruments	4,895		4,895		3,589		3,589
Portfolio loans, net	4,223,244		4,254,581		4,054,473		4,096,741
State tax credits, held for sale	45,625		48,622		43,468		44,271
Accrued interest receivable	19,879		19,879		14,069		14,069

Balance sheet liabilities
Deposits	4,210,476		4,203,913		4,156,414		4,153,323
Subordinated debentures and notes	118,144		105,611		118,105		105,031
Federal Home Loan Bank advances	401,000		400,977		172,743		172,893
Other borrowings	161,795		161,676		253,674		253,530
Derivative financial instruments	4,895		4,895		3,589		3,589
Accrued interest payable	2,433		2,433		1,730		1,730

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 18 – Fair Value Measurements in the Company's Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the Securities and Exchange Commission.

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 presented on the condensed consolidated balance sheets at fair value at September 30, 2018, and December 31, 2017.



	Estimated Fair Value Measurement at Reporting Date Using						Balance at September 30, 2018
(in thousands)	Level 1		Level 2		Level 3
Financial Assets:
Securities held to maturity	$	—	$	64,416	$	—	$	64,416
Portfolio loans, net	—		—		4,254,581		4,254,581
State tax credits, held for sale	—		—		48,451		48,451
Financial Liabilities:
Deposits	3,536,239		—		667,674		4,203,913
Subordinated debentures and notes	—		105,611		—		105,611
Federal Home Loan Bank advances	—		400,977		—		400,977
Other borrowings	—		161,676		—		161,676

	Estimated Fair Value Measurement at Reporting Date Using						Balance at December 31, 2017
(in thousands)	Level 1		Level 2		Level 3
Financial Assets:
Securities held to maturity	$	—	$	73,458	$	—	$	73,458
Portfolio loans, net	—		—		4,096,741		4,096,741
State tax credits, held for sale	—		—		43,871		43,871
Financial Liabilities:
Deposits	3,577,641		—		575,682		4,153,323
Subordinated debentures and notes	—		105,031		—		105,031
Federal Home Loan Bank advances	—		172,893		—		172,893
Other borrowings	—		253,530		—		253,530