Fair Value Measurements

9 Months Ended

Sep. 30, 2011

FAIR VALUE MEASUREMENTS [Abstract]

Fair Value Disclosures [Text Block]

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, 2011, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.

	September 30, 2011
(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	$	—	$	29,657	$	—	$	29,657
Obligations of states and political subdivisions	—		32,915		3,025		35,940
Residential mortgage-backed securities	—		391,929		4,957		396,886
Total securities available for sale	$	—	$	454,501	$	7,982	$	462,483
Portfolio loans	—		14,786		—		14,786
State tax credits held for sale	—		—		29,494		29,494
Derivative financial instruments	—		1,205		—		1,205
Total assets	$	—	$	470,492	$	37,476	$	507,968
Liabilities
Derivative financial instruments	$	—	$	1,926	$	—	$	1,926
Total liabilities	$	—	$	1,926	$	—	$	1,926

• 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. Through September 30, 2011, Level 3 securities available for sale include three Auction Rate Securities, a municipal bond issued by a school district and a newly issued residential mortgage-backed security.

• 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, 2011, of the $56.3 million of state tax credits held for sale on the condensed consolidated balance sheet, approximately $29.5 million were carried at fair value. The remaining $26.8 million of state tax credits were accounted for at cost.

The fair value of the state tax credits carried at fair value increased $975,000 for the quarter ended September 30, 2011 compared to a $1.1 million increase for the same period in 2010. 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 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 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. 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, 2011.

• Purchases, sales, issuances and settlements, net. Purchases of Level 3 financial instruments during the quarter ended September 30, 2011 include a newly issued residential mortgage-backed security.

• Transfers in and/or out of Level 3. The transfer out of Level 3 is related to two newly issued mortgage-backed securities purchased in the fourth quarter of 2010 which were originally priced using Level 3 assumptions. In the first quarter of 2011, a third party pricing service became available.

	Securities available for sale, at fair value
	Three months ended September 30,					Nine months ended September 30,
(in thousands)	2011		2010			2011			2010
Beginning balance	$	2,994	$	3,018		$	7,520		$	2,830
Total gains (losses):
Included in other comprehensive income	5		(68		)	34			20
Purchases, sales, issuances and settlements:
Purchases	4,983		10,730			4,983			10,830
Transfer in and/or out of Level 3	—		—			(4,555		)	—
Ending balance	$	7,982	$	13,680		$	7,982		$	13,680
Change in unrealized gains relating to assets still held at the reporting date	$	5	$	(68	)	$	34		$	20

	State tax credits held for sale
	Three months ended September 30,						Nine months ended September 30,
(in thousands)	2011			2010			2011			2010
Beginning balance	$	29,247		$	32,622		$	31,576		$	32,485
Total gains:
Included in earnings	1,211			1,082			2,020			2,947
Purchases, sales, issuances and settlements:
Sales	(964		)	(12		)	(4,102		)	(1,740		)
Ending balance	$	29,494		$	33,692		$	29,494		$	33,692
Change in unrealized gains relating to assets still held at the reporting date (1)	$	975		$	1,079		$	1,009		$	2,516

(1) Correction of Prior Period Fair Value Disclosures - The Company has corrected an error in the fair value disclosure for level 3 state tax credit investments. In the "State Tax Credits held for sale" table included in Note 9 to the Company's Notes to Condensed Consolidated Financial Statements for the quarter ended September 30, 2010, the Company inadvertently included the three month ended amount of $1,079 instead of nine month ended amount of $2,516. The correction had no effect on the balance sheet, statement of operations, cash flows or shareholders' equity.

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, 2011.

	(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, 2011			Total (losses) gains for the nine months ended September 30, 2011
Impaired loans	$	8,869	$	—	$	—	$	8,869	$	(5,061	)	$	(14,981	)
Other real estate	16,713		—		—		16,713		(618		)	(3,261		)
Total	$	25,582	$	—	$	—	$	25,582	$	(5,679	)	$	(18,242	)

(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, 2011 and December 31, 2010.

	September 30, 2011				December 31, 2010
(in thousands)	Carrying Amount		Estimated fair value		Carrying Amount		Estimated fair value
Balance sheet assets
Cash and due from banks	$	26,015	$	26,015	$	23,413	$	23,413
Federal funds sold	2,371		2,371		3,153		3,153
Interest-bearing deposits	240,488		240,488		268,853		268,853
Securities available for sale	462,483		462,483		361,546		361,546
Other investments, at cost	14,648		14,648		12,278		12,278
Loans held for sale	5,076		5,076		5,640		5,640
Derivative financial instruments	1,205		1,205		2,042		2,042
Portfolio loans, net	2,149,447		2,155,695		1,845,162		1,850,197
State tax credits, held for sale	56,278		56,278		61,148		61,148
Accrued interest receivable	8,702		8,702		7,464		7,464
Balance sheet liabilities
Deposits	2,817,262		2,826,565		2,297,721		2,301,387
Subordinated debentures	85,081		45,861		85,081		44,866
Federal Home Loan Bank advances	102,000		110,922		107,300		118,602
Other borrowings	100,729		100,739		119,333		119,366
Derivative financial instruments	1,926		1,926		2,607		2,607
Accrued interest payable	1,892		1,892		1,488		1,488

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, 2010.